Mozelle Lester, Plaintiff-appellant, v. United States of America, Defendant-appellee, 947 F.2d 950 (9th Cir. 1991)

MEMORANDUM^** 

Mozelle Lester, widow of Roy Lester and the executrix of his estate, appeals from the district court's entry of summary judgment in favor of the government on her claim for a refund of federal estate taxes. Mrs. Lester argues that the district court erred by upholding the government's position that one-half of the proceeds of an insurance policy on her husband's life were includable in his gross estate. We review de novo, see Goodwin v. United States, 935 F.2d 1061, 1064 (9th Cir. 1991), and we affirm.

At the time of Roy Lester's death on May 16, 1981, section 2035 of the Internal Revenue Code of 1954 ("I.R.C.") provided, in relevant part, as follows:

(a) Inclusion of gifts made by decedent.--Except as provided in subsection (b), the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer ... during the 3-year period ending on the date of the decedent's death.

(b) Exceptions.--Subsection (a) shall not apply--

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(2) to any gift to a donee made during a calendar year if the decedent was not required ... to file any gift tax return for such year with respect to gifts to such donee.

Paragraph (2) shall not apply to any transfer with respect to a life insurance policy.

In First Nat'l Bank of Oregon v. United States, 488 F.2d 575 (9th Cir. 1973), we construed "transfer" under I.R.C. § 2035 as applying to life insurance transactions designed to avoid estate taxes. Id. at 577 ("There is only a formal difference between a decedent first buying a policy, then transferring it to the beneficiary, and the beneficiary purchasing the policy at the urging of the decedent and with the decedent's funds"). Since our decision in First National, we have twice had occasion to determine what constitutes a "transfer" for purposes of I.R.C. § 2035.

In Estate of Schnack v. C.I.R., 848 F.2d 933 (9th Cir. 1988), we reversed the Tax Court's ruling that the proceeds of an insurance policy owned by the husband on the life of his deceased wife were not includable in her gross estate. In reaching that result we noted, inter alia, that the checks she wrote to pay the insurance premiums had been drawn on their joint checking account from a bank in a community property state. Id. at 938. Similarly, in Knisley v. United States, 901 F.2d 793 (9th Cir. 1990), we upheld the district court's ruling that a husband had made a "transfer" within the meaning of I.R.C. § 2035 by making inter vivos "gifts" to his wife in amounts equal to the cost of the insurance premiums on a policy she held on his life because, inter alia, the "gifts" were represented by checks drawn on their joint account at a bank in a community property state. Id. at 795. In addition, the decedents in both the Schnack and Knisley cases had been involved to some extent in obtaining the insurance, either by direct purchase or by acquiescing in its purchase, for reasons of tax avoidance.¹ 

Here, the uncontroverted facts before the district court showed that (1) the appellant paid the insurance premiums with checks drawn on their joint account at a bank located in a community property state, and (2) both the appellant and her husband met, separately and together, on several occasions with their neighbor--an insurance agent² --and discussed the possibility of the appellant's obtaining insurance coverage on her husband's life in such a way that the proceeds therefrom would not constitute any part of his taxable estate. Under the circumstances, we find no error in the district court's ruling in favor of the government.

AFFIRMED.