Friendly, Chief Judge, and Lumbard and Feinberg, Circuit Judges.
The Commissioner of Internal Revenue appeals from a decision of the Tax Court holding that proceeds of nine insurance policies on decedent's life were not includible in decedent's estate. The Tax Court, 56 T.C. 1190, held incorrect the Commissioner's inclusion of these proceeds in decedent's gross estate and his assessment of a deficiency thereon.
In 1961 Hector Skifter, the decedent, assigned all his interest in nine insurance policies on his life to his wife Naomi, effectively making her the owner of those policies. Skifter retained no interest in the policies and retained no power over them. Several months later, Naomi died and left a will directing that her residuary estate, which included the nine insurance policies, be placed in trust. She directed that the income was to be paid to their daughter, Janet, for life and, upon Janet's death, there were provisions for the distribution of corpus and income to other persons.
Naomi appointed Skifter as trustee and authorized him, in his absolute discretion, at any time and from time to time, to pay over the whole or any part of the principal of the trust to the current income beneficiary whether or not this would result in the termination of the trust. It was explicitly provided that, in making these payments, the trustee could disregard any rules of trust law that may require impartiality between income beneficiaries and remaindermen. In addition, Skifter, as trustee, was given broad powers of management and control over the trust, including the powers to sell and mortgage the property and invest and reinvest the proceeds.
In 1964 Skifter died and a successor trustee was named. Contending that, under the terms of the trust established under Naomi's will, Skifter possessed at his death "incidents of ownership" so as to require that the proceeds of the insurance be included in his estate under § 2042(2) of the Internal Revenue Code, the Commissioner assessed a deficiency against the estate. From the Tax Court's holding in favor of the estate, the Commissioner appeals.
Section 2042(2) of the Internal Revenue Code provides, in pertinent part, as follows:
The value of the gross estate shall include the value of all property to the extent of the amount receivable by all . . . 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.
The essential issue before this Court is whether the broad fiduciary powers that were granted to Skifter under Naomi's will constitute "incidents of ownership" within the meaning of § 2042(2). We hold that they do not, and thus affirm the decision of the Tax Court.
In enacting the predecessor of § 2042(2), the Senate and House Committee Reports of the Seventy-seventh Congress acknowledged that, while the new provision introduced the term "incidents of ownership," it failed to suggest a definition of it. The Reports then went on to list the sort of powers and interest that the Congress was concerned with:
Examples of such incidents are the right of the insured or his estate to the economic benefits of the insurance, the power to change the beneficiary, the power to surrender or cancel the policy, the power to assign it, the power to revoke an assignment, the power to pledge the policy for a loan, or the power to obtain from the insurer a loan against the surrender value of the policy.
See 1942-2 Cum.Bull., pp. 491, 677. The Treasury relied on this legislative history in promulgating its regulations on § 2042(2). Reg. § 20.2042-1(c) (2) states:
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 to obtain from the insurer a loan against the surrender value of the policy, etc. . . .
It seems significant to us that the reference point in the regulation for "incidents of ownership" is "the right . . . to the economic benefits of the policy," since there was no way in which Skifter could have exercised his powers to derive ...