Estate of Henry v. Commissioner, Docket No. 12210-85.
| Decision Date | 04 March 1987 |
| Docket Number | Docket No. 12210-85. |
| Citation | 1987 TC Memo 119,53 TCM (CCH) 290 |
| Parties | Estate of Richard A. Henry, Deceased, Gerald C. Opgenorth, Personal Representative v. Commissioner. |
| Court | U.S. Tax Court |
Larry I. Hanson, for the petitioner. Mark J. Miller and Nelson E. Shafer, for the respondent.
Respondent determined a deficiency in petitioner's Federal estate tax in the amount of $42,437.00. After concessions, the issues for decision are: (1) whether the proceeds of two group term life insurance policies owned by petitioner's employer are includible in petitioner's gross estate where petitioner retained the right to designate the beneficiary; and (2) if so, the amount to be included.
The case was submitted fully stipulated. The stipulation of facts and exhibits thereto are incorporated herein by reference.
At the time of his death, Richard A. Henry (hereinafter referred to as the "decedent") was a resident of Reedsburg, Wisconsin. At the time of the filing of the petition in this case, Gerald C. Opgenorth, the personal representative of the decedent's estate, was a resident of Madison, Wisconsin.
From August 1, 1980 until his death, the decedent was a pathologist, employed by Consultant Physicians in Pathology, S.C.
On May 17, 1981, the decedent died after an accidental fall on the steps outside of his home. At the time of his death the decedent was insured under two group term life insurance policies as follows:
Accidental
Death
Policy Face Amount Benefit
1. Rural Security Life Insurance $ 5,000.00 $ 5,000.00
Policy G-321-055
(the "Rural Security Policy")
2. Manufacturers Life Insurance $100,000.00 $100,000.00
Policy GT12407-00-3
(the "Manufacturers Policy")
The Rural Security Policy was part of a group policy and was owned by Consultant Physicians in Pathology, S.C. The terms of the Rural Security Policy provide in part: "The Employee may change the beneficiary from time to time without the beneficiary's consent by filing a written notice of such change through the Employer." Thus, under the terms of the Rural Security Policy the decedent had the right to designate the beneficiary of the insurance policy. He retained this right until his death.
The Rural Security Policy was issued on September 1, 1980 and was in force at the time of the decedent's death. The decedent designated Diane L. Henry, his wife, as the beneficiary of the Rural Security Policy. Pursuant to that designation upon the decedent's death Mrs. Henry received the proceeds.
The Manufacturers Policy was also part of a group policy and was owned by Consultant Physicians in Pathology, S.C. The terms of the Manufacturers Policy provide in part: "An employee, by written notice in form satisfactory to the Insurance Company, can designate a beneficiary or beneficiaries for the insurance due under the policy on his death, and can similarly change the beneficiary designation from time to time." Thus, under the terms of the Manufacturers Policy the decedent was entitled to designate the beneficiary. He retained this right until his death.
The Manufacturers Policy was issued on September 6, 1980 and was in force at the time of the decedent's death. The decedent designated Diane L. Henry, his wife, as beneficiary of the Manufacturers Policy. Pursuant to that designation upon the decedent's death Mrs. Henry received the proceeds.
The Manufacturers Policy and Rural Security Policy were purchased by Consultant Physicians in Pathology, S.C. as part of the decedent's compensation.
Petitioner contends that neither the Rural Security Policy nor the Manufacturers Policy are includable in the decedent's gross estate for Federal estate tax purposes. Additionally, petitioner contends that even if the basic benefits of the policies are includable in the decedent's gross estate, the additional accidental death benefit payable with respect to the Manufacturers Policy is not includable.1 Respondent contends that the basic benefits and the additional accidental death benefits payable with respect to both policies are includable in the decedent's gross estate for Federal estate tax purposes.
We agree with respondent. Under section 2042(2),2 the proceeds of life insurance are includable in the decedent's gross estate if he possessed any incidents of ownership at his death. It is well settled that the retention of the right to designate the beneficiary of an insurance policy is an incident of ownership within the meaning of section 2042(2). Piggott's Estate v. Commissioner 65-1 USTC ¶ 12,290, 340 F.2d 829, 836 (6th Cir. 1965), affg. a Memorandum Opinion of this Court Dec. 25,985(M); Estate of Perl v. Commissioner Dec. 37,929, 76 T.C. 861, 863 (1981); section 20.2042-1(c)(2), Estate Tax Regs.3 The regulations under section 2042(2) are based upon the report of the House Ways and Means Committee, which states as follows:
There is no specific enumeration of incidents of ownership, the possession of which at death forms the basis for inclusion of insurance proceeds in the gross estate, as it is impossible to include an exhaustive list. Examples of such incidents are the right of the insured or his estate to the economic benefits of the insurance, the power to change the beneficiary, the power to surrender or cancel the policy, the power to assign it, the power to revoke an assignment, the power to pledge the policy for a loan, or the power to obtain from the insurer a loan against the surrender value of the policy. Incidents of ownership are not confined to those possessed by the decedent in a technical legal sense. *** H. Rept. No. 2333, 77th Cong., 1st Sess. (1942), 1942-2 C.B. 372, 491. Emphasis supplied.
The facts here fit squarely with Estate of Perl v. Commissioner, supra, which involved the proceeds of an insurance policy purchased by the decedent's employer as a part of an employee benefits program. There, we held that the fact that the decedent retained until his death the power to designate the beneficiary of his insurance caused the proceeds to be includable in his estate under section 2042(2).
Pursuant to the terms of the Rural...
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