Everett Trust & Savings Bank v. Comm'r of Internal Revenue (In re Estate of Meyer)

• Decision Date: 07 April 1976
• Docket Number: Docket No. 513-74.
• Parties: ESTATE OF W. VINCENT MEYER, DECEASED, EVERETT TRUST & SAVINGS BANK, TRUSTEE, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

66 T.C. 41

ESTATE OF W. VINCENT MEYER, DECEASED, EVERETT TRUST & SAVINGS BANK, TRUSTEE, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 513-74.

United States Tax Court

Filed April 7, 1976.

Decedent, a resident of the State of Washington, made his wife ‘owner’ and beneficiary of a term life insurance policy and paid premiums thereon from community funds. Held: One-half of the proceeds are includable in decedent's gross estate as community property. Petitioner has not proved by the requisite clear and convincing evidence that it was decedent's intent to make the policy his wife's separate property. And Wash. Rev. Code Sec. 48.18.440, relied on by petitioner, does not transmute a policy to separate property of a wife merely because she is made the beneficiary thereof. Birney N. Dempcy, for the petitioner.

Robert J. Chicoine, for the respondent.

HALL, Judge:

Respondent determined a deficiency in petitioner's estate tax of $5,909. The sole issue is whether a certain life insurance policy on the life of decedent W. Vincent Meyer was the separate property of decedent's wife or the community property of decedent and his wife. If the policy was community property, one-half the value of the proceeds should have been included in decedent's gross estate.

FINDINGS OF FACT

W. Vincent Meyer died on March 24, 1970. Before his death, he and his wife had lived in the State of Washington for 30 years. On June 25, 1971, the Everett Trust & Savings Bank, executor of decedent's estate, filed an estate tax return for the estate.

On April 29, 1966, decedent as ‘proposed insured’ and his wife as ‘owner’ submitted an application to Investors Guaranty Life Insurance Co. (insurance company) for $60,000 of nonparticipating, 12-year decreasing term insurance on decedent's life. On July 12, 1966, such a decreasing term policy was issued on decedent's life. In the policy decedent's wife was designated as ‘owner.’

The monthly premiums of $50.81 were paid pursuant to a ‘bank check plan’ whereby the insurance company monthly drew a check in the amount of the premium on decedent's and his wife's bank account. The funds in the account were community property.

Decedent's wife believed that signing as ‘owner’ on the insurance application would avoid estate taxes in the event of here husband's death. She believed that here husband had no ownership rights in the policy. She gave no thought to the fact that as owner she could have assigned the policy or changed the beneficiaries. She and decedent did not discuss the fact that she had these powers.

Mr. Goodwin, the insurance agent who sold the policy, generally discussed the subjects of estate planning, insurance, and investments with decedent and his wife. Decedent and his wife had estate planning and the avoidance of estate taxes in mind when they applied for an obtained the policy.

Pursuant to the terms of the policy, $46,920 was paid by the insurance company to decedent's wife as beneficiary of the policy upon notification of decedent's death. The executor did not include any portion of the proceeds in decedent's gross estate for estate tax purposes.

OPINION

Petitioner argues that the insurance policy was the separate property of decedent's wife and therefore not includable in decedent's gross estate, because (1) decedent's wife was designated as ‘owner’ in the policy and decedent and his wife had agreed that the policy was her separate property and not their community property, and (2) Washington Law (Wash. Rev. Code sec. 48.18.440 (1974)) provides that where the wife is named beneficiary of a policy on the life of the husband, she owns that policy as her separate property as matter of law.

Respondent contends that although the policy in question designated the decedent's wife as ‘owner,‘ petitioner has failed to prove that decedent made a gift of his community interest to the wife, and thus the policy was community property and decedent's one-half interest at his death was includable in his gross estate pursuant to section 2042.¹ Respondent further contends that Wash. Rev. Code sec. 48.18.440 (1974) does not convert the policy into the separate property of the wife.

1. Gift by Husband

The character of the insurance policy as separate or community property is determined under Washington law. Under Washington law, all property acquired after marriage in any manner by either spouse, or both, is community property, except property acquired by gift, devise, or inheritance, and the rents, issues, and profits thereof. Wash. Rev. Code secs. 26.16.010, 26.16.020, and 26.16.030 (1974). Each spouse has an equal, present, and vested right in the community property. Poe v. Seaborn, 282 U.S. 101, 111 (1930); In re Towey's Estate, 22 Wash. 2d 212,155 P. 2d 273 (1946). Generally where life insurance premiums are paid from community property funds, the insurance policy and its proceeds are community property. Occidental Life Ins. Co. v. Powers, 192 Wash. 475, 74 P.2d 27 (1937).

‘(T)o establish that property acquired during marriage is not community property (under Washington law) it is necessary to show that it was obtained by the acquiring spouse by gift, devise or descent. Any such demonstration must overcome a strong presumption in favor of the community and the burden is upon the party who asserts separate property status to establish it. (Citations omitted.) While the magnitude of this burden has been described variously, a fair statement is that the evidence sufficient to overcome the presumption must be clear, definite and convincing.’ Kern v. United States, 491 F.2d 436, 439 (9th Cir. 1974).

In Kern two policies of life insurance were issued on the life of the decedent-husband, a resident of Washington. In each case the wife was the applicant for the policy. The applications stated that the policies belonged to and were subject to the exclusive control and disposition of the applicant. In the case of one policy only, there was the following endorsement:

It is understood and agreed that application for the policy was made by Airline G. Kern, wife of the Insured, designated as the applicant. It is further understood and agreed that the said applicant is the sole owner of this policy and may receive and exercise every right and privilege thereunder, if she be living, otherwise the Executors, Administrators or Assigns of the said applicant. Under this agreement, it is understood that neither the Insured nor his estate shall have any interest in this policy.

The Ninth Circuit Court of Appeals held that the fact that the application forms described the applicant as owner, without regard to the relationship of owner to insured, did not constitute a clear, definite, and convincing demonstration that it was intended that the policy be the separate policy of the wife.

In this case the wife was designated owner, but here as in Kern, there was no discussion of the effect of the marital relationship between insured and owner. Nor was there any endorsement in which the parties, recognizing that relationship, described the policy as the sole or separate property of the wife in which the husband had no interest. Moreover, nothing in the testimony of the wife or the insurance agent who sold the policy was sufficient to prove clearly, definitely, and convincingly that the husband had no community interest in the policy and intended to make a gift of his community half of the policy to the wife. Without more, we must hold that petitioner has failed to carry its heavy burden and has failed to overcome the presumption in favor of community property. Compare Kroloff v. United States, 487 F. 2d 334 (9th Cir. 1973) (in which it was held oral testimony overcame the presumption in favor of the community under Arizona law) with Freedman v. United States, 382 F.2d 742 (5th Cir. 1967) (evidence did not overcome presumption in favor of the community under Texas law).

2. Wash. Rev. Code Sec. 48.18.440 (1974)

Next we must consider whether Wash. Rev. Code sec. 48.18.440 (1974) (hereinafter cited as sec. 48.18.440) was intended to affect the ownership characterization of the insurance policy during the life of the insured spouse in a manner contrary to otherwise established principles of Washington community property law. Petitioner contends that an insurance policy on the life of the husband of which the wife is the beneficiary ‘is one kind of property that is not presumptively community property under Washington law even though it was acquired during marriage.’ We do not agree.

Section 48.18.440 provides as follows:

Spouse's rights in life insurance policy. (1) Every life insurance policy heretofore or hereafter made payable to or for the benefit of the spouse of the insured, and every life insurance policy heretofore or hereafter assigned, transferred, or in any way made payable to a spouse or to a trustee for the benefit of a spouse, regardless of how such assignment or transfer is procured, shall, unless contrary to the terms of the policy, inure to the separate use and benefit of such spouse: Provided, That the beneficial interest of a spouse in a policy upon the life of a child of the spouses, however such interest is created, shall be deemed to be a community interest and not a separate interest, unless expressly otherwise provided by the policy.

(2) In any life insurance policy heretofore or hereafter issued upon the life of a spouse the designation heretofore or hereafter made by such spouse of a beneficiary in accordance with the terms of the policy, shall create a presumption that such beneficiary was so designated with the consent of the other spouse, but only as to any beneficiary who is the child, parent, brother, or sister of either of the spouses. The insurer may in good faith rely upon the representations made by the insured as to the relationship to him of any such beneficiary.

At first blush, petitioner's argument appears to derive force from the language of the statute on...