Flick's Estate v. Commissioner of Internal Revenue
| Decision Date | 16 April 1948 |
| Docket Number | No. 12160.,12160. |
| Citation | 166 F.2d 733 |
| Parties | FLICK'S ESTATE v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Albert R. Connelly, and Cravath, Swaine & Moore, all of New York City, for petitioners.
Charles Oliphant, Chief Counsel, Bureau of Internal Revenue, and Charles E. Lowery, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., Theron L. Caudle, Asst. Atty. Gen., and Sewall Key, George A. Stinson, Robert N. Anderson and L. W. Post, Sp. Assts. to the Atty. Gen., for respondent.
Before SIBLEY, HOLMES, and WALLER, Circuit Judges.
On December 9, 1935, R. Jay Flick created an insurance trust with Bankers Trust Company, a New York corporation, and Robert I. Ingalls, Jr., a resident of Alabama, as trustees, to which trust the decedent on that date made complete, absolute, and irrevocable assignments of six paid-up life insurance policies. Data in reference to these policies may be synopsized as follows:
When Face Amount
Issue Date Company Paid Up Amount Collected
Mar. 3, 1897 Northwestern Mutual 1917 $ 20,000 $ 36,300.00
Life Insurance Co
No. 365032
Aug. 29, 1911 Same company, 1931 15,000 15,251.00
No. 891599
Nov. 1, 1935 Mutual Benefit Life Single 80,000 80,435.99
Insurance Co., No. premium
1702718
Nov. 1, 1935 Same company, No. Single 20,000 20,109.00
1702719 premium
Nov. 22, 1935 Connecticut Mutual Single 32,500 32,638.74
Life Insurance Co., premium
No. 887364
Nov. 26, 1935 Prudential Insurance Single 50,000 50,429.74
Co., No. 9086294 premium
________ ___________
Total ....................... $217,000 $235,164.47
These six policies had a cash value at the date of the making of the trust of $174,004.12. As noted above, four were single premium policies taken out within six weeks of the date of the creation of the trust.
The trust instrument provided that the trustees should:
Four years after creating the trust, the decedent, on December 4, 1939, made a will purportedly revoking all former wills and providing also for the creation of a trust, out of the residue of the estate, not including the insurance policies, however, but distributable to the same beneficiaries as in the insurance trust.
In the year of making the trust 1935 decedent made a return and paid the gift tax on the value of the insurance policies assigned to the trust estate. At the time of the creation of the trust decedent was sixty-four years of age and in good health. His sixty-three-year old wife was an invalid, and had been for a number of years; nevertheless, she and the other contingent beneficiaries survived him.
Decedent, while a resident of Palm Beach, Florida, died on August 24, 1940, nearly five years after the creation of the trust.
The Commissioner, in the determination of the gross estate of the decedent, added the sum of $235,164.47, representing the net proceeds received by the trustees from the six insurance policies.2
It was stipulated that at the time the trust was established the decedent was in good health and that the trust was not created in contemplation of death insofar as it concerned the health of the settlor. Between the date of the making of the trust agreement and the decedent's death there was no change in the securities, but the trustees, meanwhile, collected $7,993.89 as dividends on the policies.
It was shown in evidence without dispute that: the estate of decedent consisted largely of stocks against which there were debit balances of $140,000; that the decedent did not discuss inheritance taxes with the attorney who prepared the trust agreement or with his family; that he did, however, display concern over rising income taxes; that he advised his attorney that his primary interest in the creation of the trust was a desire to provide security for his invalid wife.
The Tax Court found that the dominant purpose of the deceased in creating the trust was not advancing age or insecure health, but that the very nature of the decedent's dispositions showed that a desire to make provision upon the event of his death predominated, and that the transfers of the insurance policies to the trust estate "were substitutes for testamentary dispositions." In reaching this conclusion The Tax Court stated that it was influenced by the following considerations: (a) that the subject matter of the transfer, to wit, policies of insurance, would acquire their greatest value upon maturity at the death of the insured; (b) the circumstances of the acquisition of the policies; (c) the fact that the trust favored the same beneficiaries and made the same distributory provisions as to the residuum of decedent's estate as were made in his will; (d) that the trustees in the insurance trust were the same as the executors of the will;3 (e) that the provision in the trust agreement authorizing his trustees to purchase from his executors or administrators under his will any securities or other property, real or personal, belonging to his estate denoted an intimate connection in the decedent's mind between the estate that would occur on his death and the trust; (f) that the creation and design of the trust were such as heavily emphasized considerations connected with the death of the decedent. The Tax Court in summary made the following statement: "All of these evidences look in the direction of a provision for the integration of the proceeds of the insurance and the property devolving at death, creating persuasive inferences of a corresponding motivation in the mind of the individual whose conduct they reflect, and consistent only with testamentary motivation."
The Tax Court thought that "Such other motives as a desire to free his property from the hazards of stock market fluctuations and to avoid the incidence of the income tax could have been accomplished in so many other ways that even were there more convincing evidence of their existence, they would yet weigh negligibly in a determination of decedent's impelling purpose."
This case must be tried by the law as it existed prior to August 24, 1940, the date of the death of the settlor. The 1942 amendment to Sec. 811, Title 26 U.S.C.A. Internal Revenue Code, expressly provided that it should be applicable only to those who died subsequent to October 21, 1942. Sec. 811(c), prior to the 1942 amendment, provided that in determining the gross estate of the decedent there should be included the value at the time of his death of all property of the decedent; Sec. 811(a) required inclusion of the interest in any property of decedent; Sec. 811(c) required inclusion "To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, or of which he has at any time made a transfer, by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the right to the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom; * * * Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death without such consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this subchapter".
Sec. 811(g) before the 1942 amendment provided that proceeds of life insurance "to the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life" shall be included in his gross estate. (Emphasis added.)
Let us first see if under the law any of the proceeds of the insurance policies were "receivable by the executor". The policies were made payable to the "executors, administrators, or assigns" of the insured, but all questions as to the title and ownership of property by the decedent must be determined by the law controlling the ownership and disposition of personal property of the state of the residence of the decedent, which in this case was Florida.4 Federal law does not settle questions of title to property.
We must, therefore, consider the statutes of Florida controlling the disposition of the proceeds of life insurance policies.
Sec. 222.13 of Florida Statutes Annotated provides as follows:
"222.13 Life insurance policies; disposition of proceeds "Whenever any person shall die in this state leaving insurance on his life, the said insurance shall inure exclusively to...
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