United States v. Gordon
Decision Date | 05 February 1969 |
Docket Number | No. 25018.,25018. |
Citation | 406 F.2d 332 |
Parties | UNITED STATES of America, Appellant, v. Martin Wright GORDON et al., Appellees. |
Court | U.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.
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.
The material facts, all of which were stipulated, were summarized by the district court as follows:
The relevant provisions of the Martin Wright Insurance Trust are as follows:
"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.
"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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