DocketNumber: No. 12899-99
Citation Numbers: 82 T.C.M. 400, 2001 Tax Ct. Memo LEXIS 243, 2001 T.C. Memo. 210
Judges: \"Nims, Arthur L.\"
Filed Date: 8/8/2001
Status: Non-Precedential
Modified Date: 4/18/2021
2001 Tax Ct. Memo LEXIS 243">*243 Decision will be entered under Rule 155.
H and W resided in Louisiana, a community property State,
throughout their marriage. During their marriage, H purchased
three policies of insurance on his life using community funds. H
was named as owner of the policies, and W was initially
designated as the beneficiary. W predeceased H, and at H's death
the life insurance proceeds were remitted to his children.
HELD: The policies of life insurance constitute community
property under Louisiana law such that only one-half of the
proceeds therefrom is includable in H's gross estate. Sec.
MEMORANDUM OPINION
NIMS, JUDGE: Respondent determined a Federal estate tax deficiency in the amount of $ 82,997 for the estate of William Blake Burris (the estate). After concessions, the issue for decision is the appropriate treatment for estate tax purposes of three insurance policies on the2001 Tax Ct. Memo LEXIS 243">*244 life of William Blake Burris (decedent).
Unless otherwise indicated, all section references are to sections of the Internal Revenue Code in effect as of the date of decedent's death, and all Rule references are to the Tax Court Rules of Practice and Procedure.
BACKGROUND
This case was submitted fully stipulated pursuant to Rule 122, and the facts are so found. The stipulations of the parties, with accompanying exhibits, are incorporated herein by this reference. Decedent was a resident of Shreveport, Louisiana, when he died testate in that State on June 18, 1996. His will was subsequently admitted to probate in the First Judicial District Court, Caddo Parish, Louisiana. Decedent's son, William Blake Burris III, was named executor of the estate and likewise resided in Louisiana at the time the petition in this case was filed.
On December 17, 1943, decedent married Audrey Shovan Burris (Mrs. Burris). The couple resided in Louisiana, a community property state, throughout their marriage and did not enter into a matrimonial or other agreement separating the spouses in property. During their marriage, between 1987 and 1988, decedent applied for and obtained three policies of insurance2001 Tax Ct. Memo LEXIS 243">*245 on his life: First Colony Life Insurance Policy No. 1319100, First Colony Life Insurance Policy No. 1330053, and Pacific Standard Life Insurance Policy No. 30L0174116. Each was a single premium policy for which the premiums of $ 150,000, $ 34,504.32, and $ 243,000, respectively, were paid with community funds. The policies each provided for payment of a specified death benefit amount and additionally accumulated a cash surrender value. The contract terms also permitted loans against the policies. Effective May 11, 1994, Pacific Standard Policy No. 30L0174116 was taken over by Hartford Life Insurance Company as Policy No. UM0174116.
Decedent was identified as the owner and as the insured with respect to each of the insurance policies. 1 The initial named beneficiary was Mrs. Burris, and such designation was not made to be irrevocable. According to the policy terms, the owner was granted "all rights" stated therein. In particular, the policies provided that the owner could change the designation of owner and beneficiary, could surrender the policy for its cash value, and could obtain loans against the security of the policy.
2001 Tax Ct. Memo LEXIS 243">*246 On September 7, 1995, Mrs. Burris predeceased decedent. Following her death, the three children of decedent and Mrs. Burris were made the beneficiaries, in equal one-third shares, of the foregoing life insurance policies. Decedent then died on June 18, 1996, as indicated above, and the proceeds of the policies were presumably paid to the children.
Subsequently, on October 28, 1996, a Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, was filed on behalf of each spouse. On the Form 706 for Mrs. Burris's estate, one-half of the cash surrender value of the three life insurance policies as of her date of death, an amount equaling $ 226,070, was included as an asset in her gross estate. On the Form 706 for decedent's estate, the total amount of the proceeds payable under the three policies, $ 825,089, was reported as property includable in his gross estate. The estate now contends, however, that such reporting was erroneous and that only one-half of the proceeds, or $ 412,544.50, should have been included for gross estate purposes on decedent's return.
DISCUSSION
As a general rule, the Internal Revenue Code imposes a Federal tax "on the transfer2001 Tax Ct. Memo LEXIS 243">*247 of the taxable estate of every decedent who is a citizen or resident of the United States."
The value of the gross estate shall include the value of
all property --
* * * * * * *
(2) Receivable By Other Beneficiaries. -- To the
extent of the amount receivable by all other beneficiaries
as insurance under policies on the life of the decedent
with respect to which the decedent possessed at his death
any of the incidents of ownership, exercisable either alone
or in conjunction with any other person. * * *
Regulations promulgated under2001 Tax Ct. Memo LEXIS 243">*248
For purposes of this paragraph, the term "incidents of
ownership" is not limited in its meaning to ownership of the
policy in the technical legal sense. Generally speaking, the
term has reference to the right of the insured or his estate to
the economic benefits of the policy. Thus, it includes the power
to change the beneficiary, to surrender or cancel the policy, to
assign the policy, to revoke an assignment, to pledge the policy
for a loan, or the obtain from the insurer a loan against the
surrender value of the policy, etc. * * *
Estate Tax Regs.]
The above definition is then augmented by the following caveat:
As an additional step in determining whether or not2001 Tax Ct. Memo LEXIS 243">*249 a
decedent possessed any incidents of ownership in a policy or any
part of a policy, regard must be given to the effect of the
State or other applicable law upon the terms of the policy. For
example, assume that the decedent purchased a policy of
insurance on his life with funds held by him and his surviving
wife as community property, designating their son as beneficiary
but retaining the right to surrender the policy. Under the local
law, the proceeds upon surrender would have inured to the
marital community. Assuming that the policy is not surrendered
and that the son receives the proceeds on the decedent's death,
the wife's transfer of her one-half interest in the policy was
not considered absolute before the decedent's death. Upon the
wife's prior death, one-half of the value of the policy would
have been included in her gross estate. Under these
circumstances, the power of surrender possessed by the decedent
as agent for his wife with respect to one-half of the policy is
not, for purposes of this section, an "incident of ownership",
and2001 Tax Ct. Memo LEXIS 243">*250 the decedent is, therefore, deemed to possess an incident of
ownership in only one-half of the policy.
Estate Tax Regs.]
The parties in this case disagree as to the portion of the proceeds from the three policies of insurance on decedent's life which must be included in his gross estate. The estate contends that only 50 percent is includable, while respondent maintains that inclusion of 100 percent is necessary. The two sides reach their differing conclusions primarily as a result of their opposing views as to whether, under Louisiana law, decedent possessed incidents of ownership in all or only part of the policies in question.
The estate avers that because the policies were acquired during the marriage with community funds, they are presumed to be community property. Further, the estate asserts that there exists no evidence of intent on the part of Mrs. Burris that the policies be held as decedent's separate property, as would be necessary to overcome the marital presumption. Accordingly, it is the estate's position that each spouse possessed an undivided one-half interest in the policies and that decedent,2001 Tax Ct. Memo LEXIS 243">*251 as registered owner, merely acted as managing agent for the community.
In the alternative, the estate argues that if the policies are found to be the separate property of decedent, then a reimbursement claim would exist in favor of Mrs. Burris's successors in interest on the grounds that community funds were used to purchase the assets. In that event, the estate alleges that such claim, in the amount of one-half of the cash surrender value of the policies at the date of Mrs. Burris's death, should be allowed as a debt against decedent's estate.
Conversely, respondent alleges that the general rules of Louisiana community property law are inapplicable to the policies at issue in this case. Rather, respondent contends that Louisiana jurisprudence, particularly as interpreted by the Court of Appeals for the Fifth Circuit in
Additionally, in response to the estate's alternative argument, respondent maintains that the heirs have no reimbursement claim against his estate because any such claim was extinguished upon the death of the insured, because Mrs. Burris's one-half of the premiums constituted a gift to decedent, and because there has been no proper substantiation of a reimbursement claim.
As previously indicated, Louisiana is a community property state.
With respect to life insurance in particular, there exists a substantial body of caselaw, at both the State and the Federal levels, that attempts to parse the relationship between such policies and the above community property maxims. The Court of Appeals for the Fifth Circuit, to which appeal in this case would normally lie, addressed this issue in
The Louisiana jurisprudence is well settled that life insurance
policies on the life of the husband unconditionally owned by the
wife or in which she is the irrevocable beneficiary are, as a
matter of law, deemed part of her separate estate. They
therefore are not within the Louisiana presumption that all
property acquired during the marriage is community property.
* * * [
The court then held that "where a husband takes out a policy of insurance on his life and either irrevocably names his wife the beneficiary or makes her the owner of the policy, he retains no interest in the proceeds of the policy under Louisiana law and, therefore, no 'incidents of ownership' within Int. Rev. Code,
In reaching the specific holding just described, the Court of Appeals also made the following broader statement:
in Louisiana a life insurance policy is a contract sui generis,
governed by rules peculiar to itself. It is the outgrowth of
judicial precedent and not of legislation, and, as such, it is
not governed by the articles of the Louisiana Civil Code as to
ownership of the policy itself or as to ownership of the
proceeds. * * * [
As support for this proposition, the court cited
Since 1969, this Court has on several occasions followed the decision in
In
Specifically, we have made clear that the Golsen rule does not apply where the precedent from the Court of Appeals contains distinguishable facts or law. See, e.g.,
With respect to the matter before us, we conclude that
In addition, given that more than 30 years have passed since the decision in
For instance, we highlight two recent cases issued in the context of a partition upon divorce of a marital community. In Biondo v. Biondo, supra at p.9, 769 So. 2d at 102 (citations omitted), the court articulated the Louisiana rule as follows:
While life insurance is generally considered sui generis under
Louisiana law, it is the proceeds of the life insurance policy,
not the policy itself, which are not subject to claims of the
community. There is a clear distinction between the ownership of
a policy of life insurance and the right to receive the proceeds
of a life insurance policy after the death of the insured. The
issue of the ownership of the life insurance proceeds is not
before us today. The * * * policy was acquired during the
marriage and the existence of the legal regime and is presumed
to be community property.
Similarly, the court in
It is well settled in Louisiana that life insurance
PROCEEDS, if payable to a named beneficiary other than2001 Tax Ct. Memo LEXIS 243">*260 the
estate of the insured, are not considered to be a part of the
estate of the insured. The insurance PROCEEDS do not come into
existence during the life of the insured, never belong to him,
and are passed by virtue of the contractual agreement between
the insured and the insurer to the named beneficiary. Life
insurance PROCEEDS are not subject to the Civil Code Articles
relating to donations inter vivos or mortis causa, nor are they
subject to community claims or the laws regarding forced
heirship. * * *
There is a clear distinction between the ownership of a
policy of life insurance and the right to receive the proceeds
of a life insurance policy after the death of the insured. The
issue of life insurance proceeds is not before us today. The
record reveals that the life insurance policies, annuities and
IRAs in question were community property. * * * The assets in
question were acquired during the existence of the legal regime
and are presumed to be community property. * * *
See also, to like effect,
Faced with these and analogous pronouncements, respondent's position is that "Louisiana courts have established different rules for cases involving the treatment of proceeds and community partition cases involving the treatment of premiums and/or cash surrender value of life insurance policies". Respondent then summarizes these contrasting rules:
In community partition cases, there is a presumption that a
policy purchased with community funds is community property. To
rebut that presumption, one spouse may prove that the other
spouse donated funds to pay the premiums. * * *
In proceeds cases such as the present case, however, where
the presumption of community does not apply, and the Louisiana
courts have directed that the terms of the2001 Tax Ct. Memo LEXIS 243">*262 contract govern, the
inquiry is whether decedent was the owner based upon the terms
of the contract. * * *
Nevertheless, while not without initial appeal, the difficulty with the foregoing theory is that it neither adequately explains the Louisiana jurisprudence nor addresses the interplay of its premise with the test of
As regards State law, Louisiana courts have repeatedly stated that ownership of policies is governed by community property principles but ownership of proceeds is not. The explicit distinction has always been between the type of asset being considered (policy versus proceeds) and never between the type of case in which the question arises. In this connection,
Hence, although it is clear under Louisiana law that ownership of life insurance proceeds is governed solely by contract terms, such apparently does not prevent a spouse from possessing a one-half community interest in the policy at the time of the insured's death. Furthermore, it is only logical that State-level decisions considering policy ownership will typically arise in a context prior to death, such as a partition, while cases brought after death will focus on ownership of proceeds. In each scenario, the litigants dispute, and the State court is concerned with deciding, only who is entitled to the asset, either policy or proceeds, which at that juncture represents economic value.
Against this backdrop, we emphasize that respondent's own regulatory test for inclusion under
Moreover, State jurisprudence offers no cogent basis from which to conclude that the rules used to ascertain policy ownership prior to an insured's demise would cease to have any applicability were a court called upon make such a determination at death. The courts have stated that separate rules govern ownership of policies and proceeds, not that distinct bodies of law control policy ownership before versus at the time of death. Thus, in absence of any indication to the contrary, it seems reasonable to assume that Louisiana courts would apply a consistent set of rules for evaluating policy ownership, regardless of the procedural context. Since Louisiana caselaw employs general community property principles in this task, we cannot reject such standards in the matter before us.
We therefore2001 Tax Ct. Memo LEXIS 243">*265 conclude that the three policies of life insurance at issue here must be presumed to be community property under Louisiana law. As the record is devoid of facts sufficient to rebut such presumption, we hold that in accordance with
To reflect the foregoing and to give effect to concessions,
Decision will be entered under Rule 155.
1. We note that the record does not contain the complete contract of insurance for either the Pacific Standard policy or its successor Hartford Life policy. However, as neither party has intimated that the terms of these policies differed in any material way from those of the First Colony policies, we assume that the First Colony contracts are representative and that relevant provisions were substantially identical.↩
2. Black's Law Dictionary 23 (7th ed. 1999) defines "acquet" as follows: "Property acquired by purchase, gift, or any means other than inheritance; profits or gains of property between husband and wife."↩
Jack E. Golsen and Sylvia H. Golsen v. Commissioner of ... , 445 F.2d 985 ( 1971 )
David Metzger Trust v. Commissioner of Internal Revenue , 693 F.2d 459 ( 1982 )
Mrs. Anna Terranova Catalano and Mrs. Rosemary Catalano ... , 429 F.2d 1058 ( 1969 )
Standard Life Insurance Co. of the South v. Franks , 278 So. 2d 112 ( 1973 )
Don and Irene Kueneman, John R. Kueneman, and Edmund W. And ... , 628 F.2d 1196 ( 1980 )
Sizeler v. Sizeler , 170 La. 128 ( 1930 )
Allianz Life Ins. Co. of North America v. Oates , 756 So. 2d 677 ( 2000 )
Kambur v. Kambur , 652 So. 2d 99 ( 1995 )
Berry v. Metropolitan Life Insurance Company , 327 So. 2d 521 ( 1976 )
Biondo v. Biondo , 769 So. 2d 94 ( 2000 )
American Health & Life Ins. v. Binford , 511 So. 2d 1250 ( 1987 )
Metzger Trust v. Commissioner , 76 T.C. 42 ( 1981 )
Bergman v. Commissioner , 66 T.C. 887 ( 1976 )
Estate of Marks v. Commissioner , 94 T.C. 720 ( 1990 )