Kess v. Comm'r of Internal Revenue (In re Estate of Crosley)
| Decision Date | 16 December 1966 |
| Docket Number | Docket No. 1341-64. |
| Citation | 47 T.C. 310 |
| Parties | ESTATE OF POWEL CROSLEY, JR., DECEASED, MARTHA PAGE CROSLEY KESS, EXECUTRIX, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
James W. Farrell, Jr., Bruce S. Lane, and Richard W. Barrett, for the petitioner.
John J. Larkin, for the respondent.
Decedent was insured under 25 different life insurance policies. In 1934 he executed an instrument in which he purported to transfer all of these policies to an irrevocable inter vivos trust and thereby divest himself of all right, title, and interest in them. The power of the independent trustees was limited to entering into agreements with the issuing companies with respect to the distribution of the policy proceeds and all matters with respect to the rights of any person under the policies; the designation of beneficiaries of the policies was limited to a small group of members of decedent's family. Decedent died in 1961. Held: The 1934 instrument created a bona fide and effective trust, which trust acquired title, by assignment from decedent, to all 25 of the insurance policies. Decedent retained no incidents of ownership in any of the policies at his death. The insurance proceeds are not includable in decedent's gross estate under sec. 2042, 2036, or 2038 of the 1954 Code.
Respondent determined a deficiency of $1,021,062.30 in the estate tax of the Estate of Powel Crosley, Jr., deceased. The parties having settled by stipulation an issue involving the valuation of certain real property, the only question for our decision is whether the proceeds of 25 insurance policies covering the life of Powel Crosley, Jr., are includable in his estate under the provisions of section 2042, 2036, or 2038 of the Internal Revenue Code of 1954. 1
Powel Crosley, Jr. (hereinafter referred to as Crosley or as decedent), died on March 28, 1961, and his will was admitted to probate in Hamilton County, Ohio, on March 31, 1961. Martha Page Crosley Kess is the duly appointed and qualified executrix of the Estate of Powel Crosley, Jr., and in that capacity she filed a Federal estate tax return with the district director of internal revenue at Cincinnati, Ohio, on June 18, 1962.
At the time of his death Crosley was insured pursuant to at least 25 life insurance policies as follows:
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¦ ¦ ¦ ¦ ¦
+-----------+--------+-------+----------------------------------¦
¦Policy No. ¦Date of ¦Face ¦Insurer ¦
+-----------+--------+-------+----------------------------------¦
¦ ¦issuance¦amount ¦ ¦
+-----------+--------+-------+----------------------------------¦
¦ ¦ ¦ ¦ ¦
+-----------+--------+-------+----------------------------------¦
¦ ¦ ¦ ¦ ¦
+-----------+--------+-------+----------------------------------¦
¦1033292 ¦3/17/34 ¦$50,000¦Aetna Life Ins. Co. ¦
+-----------+--------+-------+----------------------------------¦
¦462222 * ¦12/26/34¦100,000¦Connecticut General Life Ins. Co. ¦
+-----------+--------+-------+----------------------------------¦
¦848893 * ¦12/24/34¦100,000¦Connecticut Mutual Life Ins. Co. ¦
+-----------+--------+-------+----------------------------------¦
¦9671904 * ¦12/28/34¦200,000¦Equitable Life Assurance Society. ¦
+-----------+--------+-------+----------------------------------¦
¦9086562 ¦3/17/33 ¦50,000 ¦Do. ¦
+-----------+--------+-------+----------------------------------¦
¦422440 ¦3/19/18 ¦3,000 ¦Massachusetts Mutual Life Ins. Co.¦
+-----------+--------+-------+----------------------------------¦
¦408446 ¦7/2/17 ¦2,000 ¦Do. ¦
+-----------+--------+-------+----------------------------------¦
¦1240916 ¦3/11/26 ¦155,000¦Mutual Benefit Life Ins. Co. ¦
+-----------+--------+-------+----------------------------------¦
¦4918673 * ¦12/29/34¦100,000¦Mutual Life Ins. Co. of New York. ¦
+-----------+--------+-------+----------------------------------¦
¦632317 * ¦12/24/34¦100,000¦National Life Ins. Co. ¦
+-----------+--------+-------+----------------------------------¦
¦552826 ¦3/17/26 ¦155,000¦New England Mutual Life Ins. Co. ¦
+-----------+--------+-------+----------------------------------¦
¦390236 ¦1/26/20 ¦15,000 ¦Do. ¦
+-----------+--------+-------+----------------------------------¦
¦362609 ¦2/13/19 ¦8,000 ¦Do. ¦
+-----------+--------+-------+----------------------------------¦
¦27802 ¦12/30/34¦50,000 ¦Columbia Life Ins. Co. ¦
+-----------+--------+-------+----------------------------------¦
¦27803 ¦12/30/34¦50,000 ¦Do. ¦
+-----------+--------+-------+----------------------------------¦
¦1730167 ¦3/14/33 ¦100,000¦Penn Mutual Life Ins. Co. ¦
+-----------+--------+-------+----------------------------------¦
¦688171 * ¦12/26/34¦25,000 ¦Phoenix Mutual Life Ins. Co. ¦
+-----------+--------+-------+----------------------------------¦
¦703964 ¦3/15/33 ¦100,000¦Provident Mutual Life Ins. Co. ¦
+-----------+--------+-------+----------------------------------¦
¦8732024 * ¦12/27/34¦100,000¦Prudential Ins. Co. of America. ¦
+-----------+--------+-------+----------------------------------¦
¦336793B ¦3/17/33 ¦50,000 ¦State Mutual Life Ins. Co. ¦
+-----------+--------+-------+----------------------------------¦
¦197134 ¦3/13/19 ¦5,000 ¦Do. ¦
+-----------+--------+-------+----------------------------------¦
¦119035EX ¦3/24/19 ¦2,000 ¦Do. ¦
+-----------+--------+-------+----------------------------------¦
¦185885EX ¦3/24/19 ¦2,500 ¦Do. ¦
+-----------+--------+-------+----------------------------------¦
¦185886EX ¦3/24/19 ¦2,500 ¦Do. ¦
+-----------+--------+-------+----------------------------------¦
¦1224776 * ¦12/29/34¦100,000¦Union Central Life Ins. Co. ¦
+-----------+--------+-------+----------------------------------¦
¦ ¦ ¦ ¦ ¦
+-----------+--------+-------+----------------------------------¦
¦ ¦ ¦ ¦ ¦
+---------------------------------------------------------------+
FN* Each of the eight policies marked with an asterisk was a single-premium life policy issued in conjunction with an annuity policy under such circumstances that the issuing company assumed no insurance risk in connection with the issuance of the life policy. The fact that some of the policies bear and issuance date subsequent to the date of the trust agreement hereinafter mentioned is not explained by the record.
During the year 1934 and thereafter Crosley was assisted in matters related to his life insurance policies by a corporation known as the Estate Planning Corp., and more particularly, by Clinton Davidson, president of that corporation. Davidson was also listed as the soliciting agent in the application for many of the above-listed policies on Crosley's life.
At sometime prior to December 20, 1934, Davidson and Crosley began discussing the idea of Crosley's establishing an irrevocable inter vivos trust to which he would transfer all of his right, title, and interest in certain life insurance policies. It was considered important to make the proposed transfers, if they were to be made, prior to the end of 1934, ‘because the gift tax (would) be 50% more if done after December 31.’
Charles Sawyer had been Crosley's attorney and close personal associate since 1924, and Crosley consulted him about most of his affairs. When Crosley sought Sawyer's advice in 1934 regarding the life insurance trust which Crosley had been discussing with Davidson, Sawyer advised him not to go into it, and to invest his money in stock. Despite this advice, Crosley went ahead with the transaction and Sawyer consented to become one of the trustees.
On December 27, 1934, Crosley and certain other persons, identified hereinafter, executed the following instrument:
I, Powel Crosley, Jr., hereby assign and transfer unto Charles Sawyer, Lewis M. Crosley, Powel Crosley III, trustees, the survivor or survivors thereof, policies of insurance on my life as set forth in Schedule A attached hereto and made part hereof, to have and to hold the same in trust for the following uses and purposes, to wit: To enter into such an agreement with the company issuing each of said several policies with reference to the distribution of the proceeds of said policy and all matters with respect to the rights of any person under said policy as my said trustees in their discretion may deem advisable.
Said agreements, however, shall provide that none of said policies or the proceeds thereof shall in any manner inure to said Powel Crosley, Jr., and said trustees shall in said contracts designate as beneficiaries one or more members of the family of the said Powel Crosley, Jr., including Gwendolyn A. Crosley, Powel Crosley, III, and Page Crosley, and the issue or descendants of any of them including Lewis L'Hommedieu Crosley, the child of Page Crosley.
As said trustees shall have entered into such an agreement with each of said respective companies their powers as trustees shall thereupon cease and terminate, and any contracts or designations made by the trustees pursuant hereto shall be irrevocable.
In no event shall I, Powel Crosley, Jr., pay or be obligated to pay any premiums on policies of insurance on my life held by the trustees hereunder and it shall not be the duty of the trustees to pay any premiums on...
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