Rosenthal v. Comm'r of Internal Revenue (In re Estate of Rosenthal)
| Decision Date | 29 April 1960 |
| Docket Number | Docket No. 77181. |
| Citation | 34 T.C. 144 |
| Parties | ESTATE OF ERNESTINA ROSENTHAL, DECEASED, JANES ROSENTHAL AND WILBERT ROSENTHAL, EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
James D. Long, Esq., for the petitioner.
Conley G. Wilkerson, Esq., for the respondent.
SEC. 2041, I.R.C. 1954— DATE OF CREATION OF POWER OF APPOINTMENT.— At her death in 1956 decedent possessed unexercised powers of appointment provided for in settlement contracts executed in 1938 under insurance policies on the life of her son. Decedent was the beneficiary of the policies. Decedent's son died in 1945. Until his death the son retained the unconditional right to revoke or change the beneficiaries and methods of payment. Held, the powers of appointment were ‘created’ prior to October 21, 1942, and the insurance proceeds are not includible in decedent's gross estate.
The Commissioner determined a deficiency in estate tax liability of $996.97.
The only question for decision is whether the powers to appoint the proceeds of certain life insurance policies possessed by decedent at the date of her death, June 20, 1956, were created after October 21, 1942. If they were created after that date the proceeds would be includible in her gross estate as determined by the Commissioner.
All of the facts are stipulated and are so found.
The estate tax return (Form 706), showing no estate tax due, was filed in the office of the district director of internal revenue at Cincinnati, Ohio, prior to September 20, 1957.
On the date of her death, June 20, 1956, Ernestina, the decedent, possessed general powers of appointment over the proceeds of certain life insurance policies under which her son, Nathaniel Rosenthal, who died February 25, 1945, was the insured.
During 1938 Nathaniel entered into settlement agreements with his insurers on the policies providing, in effect, that if such policies should mature as death claims the proceeds should be retained by the insurers, interest thereon was to be paid to Ernestina, and she was given general powers of appointment over the proceeds.
Under the terms of the policies the insured retained the unconditional right to revoke or change the beneficiaries and methods of appointment which she possessed over the policy proceeds at the time of her death.
In determining the deficiency herein the Commissioner held that Ernestina had general powers of appointment over the life insurance proceeds of the policies on the life of her son and ‘that such * * * powers of appointment were created after October 21, 1942.’ Accordingly, the Commissioner held that the proceeds subject to the powers of appointment were includible in Ernestina's gross estate.
As stated in the Commissioner's brief:
The provisions of section 2041(a)(1) of the Internal Revenue Code of 1954 tax as part of the gross estate the extent of any property with respect to which a general power of appointment created on or before October 21, 1942, was exercised by the decedent. Under section 2041(a)(2), if the power of appointment was created after October 21, 1942, the value of the property over which the power of appointment was possessed is taxable in the gross estate whether or not the power of appointment was exercised. Therefore, as the subject powers of appointment were not exercised, the critical question for determination in this case involves the dates they were created.
The Commissioner's contention, specifically, is that the powers of appointment which Ernestina had at the time of her death over the insurance proceeds were ‘created’ at the date of Nathaniel's death in 1945, when the policies became death claims and that before that time Ernestina had no powers of appointment at all.
On the other hand, petitioner argues that the powers were created at the time Nathaniel executed the settlement agreements with the insurance companies, i.e., in 1938.
Except as to powers of appointment provided for in wills the statute provides no guide in determining when a power of appointment is created. With respect to wills it is provided that a power created by a will executed on or before October 21, 1942, shall be considered a power created on or before such date if the person executing the will dies before July 1, 1949, without having republished such will after October 21, 1942. This helps little in deciding the present problem which involves an inter vivos transactions.
As to inter vivos transactions the Commissioner's position is that
We find no warrant in the statute for distinguishing between revocable and nonrevocable powers. The statutory language refers only to ‘a general power of appointment created on or before October 21, 1942.’ The parties do not argue that the power with which we are concerned was not a ‘general power.’ The only point of difference is when it was...
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United States Nat'l Bank v. Comm'r of Internal Revenue (In re Estate of Margrave)
...287 F.2d 821 (8th Cir. 1961); United States v. Merchants National Bank of Mobile, 261 F.2d 570 (5th Cir. 1958); Estate of Rosenthal v. Commissioner, 34 T.C. 144 (1960)). By the terms of the policy, the trustee had only the right to receive the proceeds and this right was subject to Mrs. Mar......
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