Nat'l Bank Detroit v. Comm'r of Internal Revenue (In re Estate of Fruehauf)
| Decision Date | 24 September 1968 |
| Docket Number | Docket No. 3484-66. |
| Citation | 50 T.C. 915 |
| Parties | ESTATE OF HARRY R. FRUEHAUF, DECEASED, NATIONAL BANK OF DETROIT, HARRY R. FRUEHAUF, JR., AND THOMAS L. MUNSON, COEXECUTORS, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
E. James Gamble, for the petitioners.
Gary F. Walker, for the respondent.
Decedent's wife owned several insurance policies taken out on the life of her husband. She died 14 months before her husband. In the wife's will it was provided that the policies were to go to a trust of which decedent was cotrustee and income beneficiary. The trustees were given broad powers to retain policies as long as they desired, to assign some of the policies to obtain money to pay premiums, to designate themselves as beneficiaries, and to sell or convert policies for cash surrender value. Held, the proceeds of the policies were correctly included in decedent's estate and he held incidents of ownership over the policies within sec. 2042, I.R.C. 1954, and the fact that his powers, affecting the beneficiaries' enjoyment of the proceeds, were held by him in his capacity as trustee, was immaterial.
Respondent determined a deficiency in the estate tax in the Estate of Harry R. Fruehauf, in the amount of $75,462.68.
Many issues have been resolved by stipulations and concessions. There is but one issue that is now for decision, namely, whether there should be included in decedent's gross estate the value of the proceeds of several insurance policies written on his life.
All of the facts have been stipulated and they are found accordingly.
The National Bank of Detroit, Harry R. Fruehauf, Jr., and Thomas L. Munson, are the duly appointed, qualified, and acting executors for the Estate of Harry R. Fruehauf, deceased. Harry R. Fruehauf died in Detroit, Wayne County, Mich., on April 29, 1962. The estate tax return in this case was filed with the district director of internal revenue, Detroit, Mich. The principal office and residences of the petitioners were Detroit, Mich., at the time the petition was filed.
During her life the decedent's wife, Vera Berns Fruehauf, applied for and received several insurance policies written on the life of the decedent. After the policies were issued to her she continued to be the owner of the policies until her death on February 17, 1961.
On the date of her death, the following policies were owned by Vera Berns Fruehauf on the life of the decedent, Harry R. Fruehauf:
+--------------------------------------------------------------------+
¦ ¦Face ¦
+-----------------------------------------------------------+--------¦
¦Policy ¦amount ¦
+-----------------------------------------------------------+--------¦
¦ ¦ ¦
+-----------------------------------------------------------+--------¦
¦Great West Life Assurance Co., policy No. 735,431 ¦$50,000 ¦
+-----------------------------------------------------------+--------¦
¦Great West Life Assurance Co., policy No. 1,052,393 ¦40,000 ¦
+-----------------------------------------------------------+--------¦
¦Lincoln National Life Insurance Co., policy No. 607,277 ¦25,000 ¦
+-----------------------------------------------------------+--------¦
¦Lincoln National Life Insurance Co., policy No. 665,180 ¦10,000 ¦
+-----------------------------------------------------------+--------¦
¦New England Mutual Life Insurance Co., policy No. 1,675,751¦60,000 ¦
+-----------------------------------------------------------+--------¦
¦Manufacturers Life Insurance Co., policy No. 908,943 ¦25,000 ¦
+--------------------------------------------------------------------+
By the express provisions of the insurance policies, the ownership and control of each policy were to be possessed and exercisable solely by the applicant, Vera Berns Fruehauf, or her personal representatives, successors, and assigns.
Vera Berns Fruehauf paid all of the premiums on each of the above policies prior to her death. The original beneficiary of each policy was Vera Berns Fruehauf. In 1959 the beneficiary designation was changed on each policy so that Vera Berns Fruehauf was the primary beneficiary, and the secondary beneficiary in the case of her death was Harry R. Fruehauf, Jr., who was the only child of Vera and Harry Fruehauf. Each change of beneficiary was made upon the application of Vera Berns Fruehauf.
The will of Vera Berns Fruehauf gave all of her tangible personal property to her husband and the balance of her property to two trusts. In article Seventh, provision was made for the transfer of one-half of her remaining property to a trust, which provided that her husband was to receive all of the income and any amounts of principal that he might request in writing. It gave her husband the power of appointment over the corpus remaining in the trust and, in default of his exercising said power of appointment, it provided that upon the death of her husband the remaining corpus was to be paid to her son.
The second trust was created by article Eighth. The following are the pertinent provisions of the will with respect to the second trust:
EIGHTH: All the rest, residue and remainder of my estate of whatever kind and wherever situate, I give, devise and bequeath to the trustees hereinafter named to be held in trust for the following uses and purposes:
(1) To pay the entire net income from the corpus of the trust quarterly, or at such other intervals as he requests, to my husband, HARRY R. FRUEHAUF, so long as he lives.
(2) If at any time or from time to time during the life of my husband the trustees other than my said husband shall, in their sole and uncontrolled discretion, determine that the resources of my husband are insufficient to enable him to maintain the standard of living to which he was accustomed during the year preceding my death and such deficiency cannot be met out of the assets of any other trust of which my husband is a beneficiary, the trustees shall distribute to my husband such portion of the principal of the trust as shall, in the sole and uncontrolled discretion of the trustees other than my husband, be deemed sufficient to enable him to maintain such standard of living.
(3) Upon the death of my said husband, the entire remaining corpus of the trust shall forthwith be assigned, paid over, conveyed and distributed, free of trust, to my then surviving issue per stirpes.
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