Conn. Bank & Tr. Co. v. United States - 465 F.2d 760 (2d Cir. 1972)

Rule:

In Rev. Rul. 54-19, 1954-1 C.B. 179, 180, the Treasury Department stated that inasmuch as the decedent has no right of action or interest in the proceeds at the time of his death, nothing "passes" from the decedent to the beneficiaries. Accordingly, the amounts recovered by the beneficiaries would not be includible in the decedent's gross estate for Federal estate tax purposes. It held that such proceeds were not part of the gross estate in Rev. Rule. 68-88, 1968-1 C.B. 397, 398, because the right of action for wrongful death does not accrue until death occurs, and in Rev. Rul. 69-8, 1969-1 C.B. 219, because the decedent in his lifetime never had an interest in either the right of action or the proceeds.

Facts:

Decedents were killed when their car was stuck by a tractor-trailer truck and exploded. Appellant, the executor of decedents' estates, commenced wrongful death actions and received settlement proceeds thereupon. The proceeds were not included in the decedent's gross estates for the federal estate tax; the commissioner of the Internal Revenue Service assessed deficiencies against each estate. The district court determined that the proceeds were properties held by decedents at the time of their deaths and thus were part of their gross estates under I.R.C. § 2033 that were taxable. Appellant challenged the district court’s decision. 

Issue:

Were the settlement proceeds properties held by the decedents at the time of their deaths, thereby making the same part of the decedents’ gross estate? 

Answer:

No.

Conclusion:

The court held that where there was no property interest in decedents which passed by virtue of their deaths, but rather which arose after their deaths, and such an interest in property was not part of decedents' gross estate under § 2033, as interpreted in decisions by the United States Supreme Court and the Connecticut Supreme Court. Neither were the proceeds subject to a power of appointment under I.R.C. § 2041 to include them in the gross estates, as it was impossible for decedents to renounce such a power of appointment that did not exist prior to their deaths. The judgments below were reversed.