Estate of Wien v. CIR

• Decision Date: 12 April 1971
• Docket Number: No. 27828.,27828.
• Citation: 441 F.2d 32
• Parties: ESTATE of Ellen M. WIEN, Deceased, et al., Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Fifth Circuit

441 F.2d 32 (1971) ESTATE of Ellen M. WIEN, Deceased, et al., Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 27828.

United States Court of Appeals, Fifth Circuit.

April 12, 1971.

David J. Harris, Karl W. Windhorst, Atlanta, Ga., for petitioners; Smith Cohen, Ringel, Kohler, Martin & Lowe, Cuba, Cuba & McNatt, Atlanta, Ga., of counsel.

Johnnie M. Walters, Asst. Atty. Gen., Lee A. Jackson, Atty., Tax Div. U. S. Dept. of Justice, Richard M. Hahn, Acting Chief Counsel, I. R. S., Christopher J. Ray, Atty., I. R. S., Meyer Rothwacks, Jonathan S. Cohen, Janet R. Spragens, Issie L. Jenkins, Atty., U. S. Dept. of Justice, Tax Div., Washington, D. C., for respondent.

Before TUTTLE, WISDOM and GOLDBERG, Circuit Judges.

GOLDBERG, Circuit Judge:

The taxpayers and the government both seek us to referee this mortal combat involving the taxation of life insurance policies. We have examined both sides in their polarization and, forsaking their extreme positions, pitch our tent of conclusion midway between their extremes. Thus in remanding we satisfy neither party in our solution to this necrological dilemma.

On June 3, 1962, Sidney and Ellen Wien, domiciliaries of Atlanta, Georgia, were killed in an airplane crash at Orly Field, Paris, France. It was stipulated that the circumstances of the crash were such that it was impossible to determine whether Ellen or Sidney Wien died first or whether they died at the same moment. At the time of their deaths the Wiens were married and the parents of two children, Joan Wien and Claire Wien Morse. Joan was killed with her parents in that fatal crash, leaving Claire Wien Morse as their sole survivor.

At the time of her death Ellen Wien owned fifteen insurance policies having a face value of $150,000 on the life of her husband. In each policy Ellen was named primary beneficiary, and the children were named secondary beneficiaries. Similarly, at the time of his death Sidney Wien owned seven insurance policies having a face value of $100,000 on the life of his wife. In each policy Sidney was named the primary beneficiary, and the children were named secondary beneficiaries.

At the time of the Wien tragedy Georgia law provided that where an insured and a beneficiary are killed in a common disaster under circumstances where it cannot be established who died first, the proceeds of the policy shall be distributed as if the insured had survived the beneficiary. As a result, after the Wiens' deaths had been established, the insurance companies paid the proceeds of the policies directly to the only surviving beneficiary, Claire Wien Morse. The funds never went to either Sidney's or Ellen's estate. Consequently this case is not concerned with the taxation of proceeds accruing to the beneficiary of an insurance policy. Both the government and the taxpayers agree that neither deceased had any taxable interest by virtue of their status as a beneficiary. The argument instead concerns the ownership interest which each deceased owned in the various insurance policies on the life of the other.

In the estate tax return filed by Sidney Wien's estate, the Executor included $21,853.57 as the amount representing Sidney's ownership interest in the policies insuring Ellen's life. This figure was based on the value of the interpolated terminal reserves of those policies. In the estate tax return filed by Ellen Wien's estate, the Executor included $96,071.55 as the amount representing Ellen's ownership interest in the policies insuring Sidney's life. This figure was also based upon the value of the interpolated terminal reserves of those policies. The Commissioner sent each estate a notice of deficiency, alleging that the value of Mr. Wien's ownership interest in the policies on Mrs. Wien's life was $182,256.05, the total proceeds paid to Claire Wien Morse from the policies insuring Ellen's life. Mrs. Wien's estate was similarly assessed. The Commissioner asserted that the value of her ownership interest in the policies on Mr. Wien's life was $253,678.63, the total proceeds paid to Claire Wien Morse as a result of the life insurance on Sidney's life.

The taxpayers contested these deficiencies assessed by the Commissioner, and suit was brought in the Tax Court. Before that court the taxpayers went one step further and demanded a refund for the amount they had actually included in the respective estates, asserting that no amount should be included as a result of the decedents' ownership interests in the various insurance policies.

The Tax Court, basing its decision on its earlier opinion in Estate of Robert M. Chown, 1968, 51 T.C. 140, rev. Chown v. Commissioner of Internal Revenue, 9 Cir. 1970, 428 F.2d 1395, held that "the absolute and unrestricted owner of life insurance policies on the life of another possesses at the instant of his simultaneous death with the insured, property rights which are includable in his `gross estate' at a value equal to the entire proceeds payable under the terms of the policies." Wien v. Commissioner of Internal Revenue, 1968, 51 T.C. 287, 289. The court therefore concluded that $253,678 should have been included in Ellen's estate in respect to her ownership interest in the insurance on Sidney's life, and that Sidney's estate should have included $182,256.05 in respect to his ownership interest in the insurance on Ellen's life. The taxpayers have appealed from this decision, and we reverse.

I.

We begin our discussion by examining the estate tax liability which accrues as a result of an ownership interest in the normal situation when the owner of an insurance policy on the life of another predeceases the insured. While courts have disagreed about the proper value to assign to the ownership interest in such a policy, it has always been supposed that the ownership rights, i. e., the power to borrow against the policy, the power to change the beneficiary, and the power to surrender the policy for cash, constituted a valuable property interest. United States v. Ryerson, 1941, 312 U.S. 260, 61 S.Ct. 479, 85 L.Ed. 819; Powers v. Commissioner of Internal Revenue, 1941, 312 U.S. 259, 61 S.Ct. 509, 85 L.Ed. 817; Guggenheim v. Rasquin, 1941, 312 U.S. 254, 61 S.Ct. 507, 85 L.Ed. 813; Commissioner of Internal Revenue v. Edwards, 7 Cir. 1943, 135 F.2d 574. Consequently, when the owner of such a property interest predeceased the insured, the value of this ownership interest was included in the estate of the deceased under I.R.C. § 2033 or its predecessors. United States v. Stewart, 9 Cir. 1959, 270 F.2d 894, cert. denied, 361 U.S. 960, 80 S.Ct. 588, 4 L.Ed.2d 542; DuPont's Estate v. Commissioner of Internal Revenue, 3 Cir. 1956, 233 F.2d 210, cert. denied, 352 U.S. 878, 77 S.Ct. 100, 1 L.Ed.2d 79; California Trust Co. v. Riddell, S.D.Cal.1955, 136 F.Supp. 7; Donaldson v. Commissioner of Internal Revenue, 1959, 31 T.C. 729.

The taxpayers have argued, however, that since Mr. and Mrs. Wien died in a common disaster these normal estate tax consequences are inapplicable. The taxpayers contend instead that neither Ellen nor Sidney possessed any ownership interest in the policies which passed through their estates at death. The basis of the taxpayers' argument seems to rest upon the premise that the ownership interest in an insurance policy is extinguished or terminated when the policy matures as a result of the death of the insured. They reason that since Sidney died, Ellen's ownership rights in the policies insuring his life were extinguished, thus no property interest was left in her estate to which the estate tax could apply. The taxpayers, of course, make a similar argument with respect to Sidney's ownership interest in the policies insuring Ellen's life. While we agree with the taxpayers premise that ownership rights are extinguished at the moment the insured dies, we think the taxpayers' conclusion that nothing was left in either owner's estate results from failure to appreciate the consequences of the Georgia simultaneous death act.

The Georgia version of the Simultaneous Death Act dealing with insurance proceeds provides:

Simultaneous deaths. — Where the individual insured or the annuitant and the beneficiary designated in a life insurance policy or policy insuring against accidental death or in an annuity contract have died and there is not sufficient evidence that they have died otherwise than simultaneously, the proceeds of the policy or contract shall be distributed as if the insured or annuitant had survived the beneficiary, unless otherwise specifically provided in the policy or contract. Payment made in accordance with the provision of this section shall fully discharge the insurer from all claims under the policy or contract unless before payment is made, the insurer has received at its home office written notice by or on behalf of some other person that such person claims to be entitled to such payment or some interest in the policy or contract. Ga.Code Ann. § 56-2426.

Once it is found that the actual order of the parties' respective deaths is not ascertainable, the statute applies so as to make a certain property disposition mandatory regardless of the factual circumstances which might have obtained at the time of the parties' demise.¹ In other words, the statute makes the actual circumstances irrelevant and provides that for purposes of distribution the property will be disposed of as if the insured survived the beneficiary. Here the parties stipulated that there was no evidence as to whether Ellen or Sidney died first or whether they died at the same moment. The Georgia simultaneous death act must therefore apply and govern the distribution of the policy proceeds and ownership rights.

Consequently, Ellen, as the owner-beneficiary of the policies on Sidney's life, is treated for property purposes as if Sidney still survived at the instant of her death. Since it is Sidney's death alone which could have caused the extinguishment of Ellen's...