Connecticut Bank & Trust Co. v. United States
465 F.2d 760 (1972)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Proceeds from a wrongful death action are not includible in a decedent's gross estate for federal estate tax purposes under IRC § 2033 or § 2041 because the decedent had no interest in the property at the time of death; the right of action is created by death, not possessed at death.
Facts:
- Warren Horton, Charles Musk, and Mary Ann Musk, all residents of Connecticut, were killed on June 14, 1965.
- They died when the car they were in was struck by a tractor-trailer owned by HMH Motor Service on the Chesapeake Bay Bridge Tunnel in Virginia.
- The deaths were considered instantaneous, with no period of ante-mortem pain and suffering.
- The Connecticut Bank and Trust Company was appointed the executor of their respective wills.
- Under the applicable Connecticut wrongful death statute, any damages recovered were to be distributed as personal estate in accordance with the last will and testament of the deceased.
Procedural Posture:
- The Connecticut Bank and Trust Company, as executor, commenced wrongful death actions against HMH Motor Service in New York state court.
- HMH removed the actions to the United States District Court for the Southern District of New York.
- The lawsuits were settled for $320,000 before trial.
- The executor did not include the settlement proceeds in the decedents' gross estates for federal estate tax purposes.
- The Commissioner of Internal Revenue determined the proceeds should have been included and assessed tax deficiencies against the estates.
- The executor paid the deficiencies and filed suits in the United States District Court for the District of Connecticut for a refund.
- The district court (a federal trial court) ruled in favor of the government, holding that the wrongful death recoveries were includible in the gross estates.
- The executor, The Connecticut Bank and Trust Company, appealed the district court's decision to the United States Court of Appeals for the Second Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does the value of a wrongful death recovery, obtained under a state statute that directs the proceeds to be distributed through the decedent's will, constitute 'property ... of the decedent at the time of his death' includible in the gross estate for federal estate tax purposes under § 2033 or § 2041 of the Internal Revenue Code?
Opinions:
Majority - Judge Robert P. Anderson
No. The value of a wrongful death recovery is not includible in a decedent's gross estate because the right of action does not exist until the moment of death and therefore cannot be an interest in property held by the decedent 'at the time of his death' as required by § 2033, nor is it property in existence prior to death over which the decedent could hold a general power of appointment under § 2041. For a property interest to be included under § 2033, it must be an interest that the decedent possessed and which 'ceased by reason of the death,' not one that springs into existence from the death itself. The court reasoned that simple logic dictates that a person cannot own a right of action for their own death while they are alive. The court also rejected the government's alternative argument under § 2041, holding that a decedent cannot have a 'general power of appointment' over property that was not in existence prior to their death. The ability to direct the proceeds via a will does not create a pre-death property interest or power taxable under the estate tax statutes.
Analysis:
This decision solidifies the principle that the federal estate tax applies to property transferred from the decedent, not property created by the decedent's death. It clarifies the temporal scope of IRC §§ 2033 and 2041, establishing a clear precedent that post-mortem assets like wrongful death proceeds are excluded from the gross estate. The ruling is significant because it provides a uniform federal tax treatment for wrongful death proceeds, regardless of whether state recovery statutes (like Connecticut's) channel the proceeds through the decedent's estate, thereby preventing the form of state law from dictating federal tax substance.
