United States v. Gordon

Decision Date05 February 1969
Docket NumberNo. 25018.,25018.
Citation406 F.2d 332
PartiesUNITED STATES of America, Appellant, v. Martin Wright GORDON et al., Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

Mitchell Rogovin, Asst. Atty. Gen., Lee A. Jackson, Elmer J. Kelsey, Willy Nordwind, Jr., Jeanine Jacobs, Attys., Dept. of Justice, Washington, D. C., Ernest Morgan, U. S. Atty., Ted Butler, Asst. U. S. Atty., San Antonio, Tex., for appellant, Andrew L. Jefferson, Jr., Asst. U. S. Atty., of counsel.

Theo F. Weiss, Edward R. Finck, Jr., San Antonio, Tex., for appellees, Clemens, Knight, Weiss & Spencer, San Antonio, Tex., of counsel.

Before GOLDBERG and CLAYTON*, Circuit Judges, and HANNAY, District Judge.

GOLDBERG, Circuit Judge:

We are again presented with a question of the relationship between the Estate Tax provisions of the Internal Revenue Code and the community property laws of Texas. This appeal by the government from the district court's judgment1 in this tax refund suit involves the interrelationship between Sections 2036(a)2 and 2043(a)3 of the Internal Revenue Code of 1954 and the characterization of the proceeds from life insurance policies under the Texas law of community property. This confrontation of the retained interest provisions of the estate tax sections of the Code with the community property laws of the State of Texas requires that we accommodate the one to the other and seek a confluence even though they emerged from different law makers, arose at different times, and served different functions.4

Daisy Wright, the decedent whose estate is the taxpayer here, and Martin Wright, her husband who predeceased her, were residents of Texas at all relevant times. Several years prior to his death, Martin Wright transferred several policies of insurance on his life to trustees of a life insurance trust, reserving incidents of ownership including the powers of revocation, withdrawal, and substitution. Upon the death of Martin Wright, the insurance proceeds were paid to the trustees who were required to hold the proceeds for the benefit of Daisy Wright for life, with the remainder interest to go to the children of Daisy and Martin. All premiums were paid with community funds.

The precise questions before this Court are:

(1) Whether, when the insurance trust became irrevocable by reason of Martin Wright's death, there was a transfer by Daisy Wright of one-half of the insurance proceeds with the right to the income from the proceeds reserved to her for her life?

(2) Whether, if there was such a transfer, it was made for a consideration in money or money's worth?

(3) Assuming that both of the above questions are answered in the affirmative, what is the measure of the consideration which Daisy received for making the transfer?

The district court answered the first two questions in the affirmative, and then decided that the value of the consideration received was the value of the life estate in all of the insurance proceeds in the trust computed as of the time of the death of Martin Wright in 1947. We affirm the district court on the first two questions. On the third issue, however, we reverse and remand as we find that the consideration received was only the value of a life estate in her husband's community half of the insurance proceeds in the trust.

I.

The material facts, all of which were stipulated, were summarized by the district court as follows:

"On October 15, 1937, Martin Wright, joined by the decedent, established the Martin Wright Insurance Trust. After the death of Martin Wright, the life insurance proceeds were paid over to the trustees named in the instrument by the insuring company. The proceeds received by the trustees were administered by them in accordance with the terms and provisions of the trust instrument from the date of Martin Wright's death to decedent's death and to the present time. The amount paid to the trustees by the company was $106,670.59.

"Premiums on the policies of insurance described in the trust instrument were paid by Martin Wright with community funds. No agreements existed between Martin Wright and Daisy Wright at any time prior to April 12, 1947, touching on or concerning the policies of insurance placed in the trust, other than that agreement evidenced by the written instrument creating the trust. During the period between April 12, 1947 and May 31, 1961, Daisy Wright made no conveyance, relinquishment, or other disposition of her right under the trust. No actions taken by Martin Wright during the period October 15, 1937, through and including the date of his death, April 12, 1947, with respect to the trust and the insurance policies therein were in fraud of any rights, legal or equitable, of his wife, Daisy Wright.

"Decedent was 64 years of age on the date of her husband's death. The value of a life estate for a 64 year old person in the sum of $106,670.59, is and was the sum of $36,975.23. On April 12, 1947, the value of an income interest for life in $53,335.29 (one-half of $106,670.59) for a person 64 years of age was $18,487.61. As of the date of death of Daisy Wright, on May 31, 1961, one-half of the net assets of the trust had a fair market value of $42,131.05.

"Within the time required by law, there was filed an estate tax return on behalf of the decedent. Upon auditing that return, the Internal Revenue Service made an additional assessment by including in the decedent's estate one-half of the fair market value of the net assets of the trust. The additional tax amounted to $12,133.75, which, together with interest thereon, making a total of $14,074.32, was paid on May 7, 1965. On May 18, 1965, decedent's representatives filed a claim for refund with the District Director."

The relevant provisions of the Martin Wright Insurance Trust are as follows:

"That I, MARTIN WRIGHT, of Bexar County, Texas, joined by my wife DAISY WRIGHT, for and in consideration of $10.00 and other valuable consideration to me in hand paid and of the love and affection that I have for my wife and children, and desiring to create a trust of the proceeds of certain insurance policies upon my life, do hereby agree to deposit with Daisy Wright, T. J. Reneberg, Luther B. Clegg and Theo F. Weiss, as Trustees, the following described policies of insurances, and any policies issued in lieu thereof, on my life, and to cause the insurance companies issuing the same to make the proceeds thereof becoming due by reason of my death to be payable to said Trustees as beneficiary, * * * And I do hereby transfer and assign to said Trustees all sums, benefits, rights, claims and causes of action of every kind accruing by reason of my death under said policies or under any policies issued in lieu thereof.

"This assignment and transfer is in trust, however; and upon my death said Trustees shall collect the net proceeds of said policies, and subject to the terms of this trust, shall hold, manage, invest and distribute the same as a trust fund upon the terms and conditions and with the powers and obligations and for the uses and purposes herein set forth.

I.

"My Trustees shall pay the entire net income derived from said trust fund to my wife Daisy Wright, so long as she shall live. Should such net income be inadequate or should she for any reason need additional funds, my Trustees are authorized to pay to the said Daisy Wright such sums out of the principal of the trust fund, from time to time as they may deem desirable or necessary.

II.

"From and after the death of my wife Daisy Wright, or from and after my death if she should predecease me, my Trustees shall pay the net income and said trust fund to my Daughter Durinda Wright Gordon and my son Phil Martin Wright, dividing the same equally between them.

* * * * * *

VII.

"My Trustees are authorized and empowered to hold, possess, manage, control, sell, lease, transfer, dispose of, convey, encumber, invest and reinvest the proceeds of, and to partition and distribute any property, or the proceeds of the income from any property, that may come into their hands as Trustees. They shall have the power to sell any or all of such property, upon such terms as they may see fit, and invest the proceeds of such sale or the income from any such property in any way they see fit; it being intended hereby to give unto said Trustees full and complete authority to hold, possess, manage, control, sell, convey, encumber, lease, invest and reinvest the whole and every part of said trust fund according to their sole judgment and discretion, without any limitation upon their powers and authority so to do, either by statute or otherwise. My Trustees are expressly authorized to purchase securities or other property from the Executor or Executrix of my estate or of the estate of my wife Daisy Wright, and to make secured or unsecured loans to such Executor or Executrix of my estate or the estate of my wife; and without any liability of any kind for loss resulting to the trust fund by reason of any such purchase or loan.

* * * * * *

XII.

"I agree to pay all premiums assessments and other charges necessary to keep said policies in force and the Trustees shall be under no duty to pay the same or to keep themselves informed with respect to such payments or take any other action to keep said policies in force.

XIII.

"I reserve and shall have full power at any time and from time to time during my lifetime, without the consent of the Trustees or any beneficiary under the trusts herein created, to exercise any option, election, right or privilege given to the insured by any of said policies, including the right to change the beneficiary therein, to borrow any sums of money in accordance with the provisions thereof, to use any of said policies of security for any purpose whatever, to receive any dividends, earnings of other payments, on any of said policies, and to surrender any of them for its cash surrender value; provided however, that I...

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4 cases
  • Kuhn v. United States
    • United States
    • U.S. District Court — Southern District of Texas
    • 21 Abril 1975
    ...Cf. Early v. Commissioner, 445 F.2d 166 (5th Cir.), cert. denied, 404 U.S. 855, 92 S. Ct. 100, 30 L.Ed.2d 96 (1971); United States v. Gordon, 406 F.2d 332 (5th Cir. 1969); Vardell v. Commissioner, 307 F.2d 688 (5th Cir. 1962). See also Lyeth v. Hoey, 305 U.S. 188, 59 S.Ct. 155, 83 L.Ed. 119......
  • Marts v. Hines, 94-30513
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • 18 Julio 1997
    ...cases. We took that approach in Calhoun County v. Roberts, 137 F.2d 130, 132 (5th Cir.1943), and again in United States v. Gordon, 406 F.2d 332, 337-38 n. 6 (5th Cir.1969), and United States v. United States Steel Corporation, 520 F.2d 1043, 1052 (5th Cir.1975), cert. denied, 429 U.S. 817, ......
  • Wheeler v. U.S.
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • 19 Junio 1997
    ...received by the surviving spouse was equal or greater in value than the remainder interest transferred. Id.; see also United States v. Gordon, 406 F.2d 332 (5th Cir.1969) (involving the transfer of a wife's remainder interest for a life estate in a trust worth less than the transferred rema......
  • Parker v. US
    • United States
    • U.S. District Court — Northern District of Georgia
    • 14 Marzo 1995
    ...in $897,666 (the entire amount of the corpus of the fund). Plaintiff also uses a slightly higher factor. On the basis of U.S. v. Gordon, 406 F.2d 332 (5th Cir.1969), the Court concludes that the Government's calculation is correct. (In Bonner v. City of Prichard, Ala., 661 F.2d 1206 (11th C......

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