Estate of Mattias Arnold Madsen, Norma v. Madsen v. Commissioner of Internal Revenue

659 F.2d 897, 48 A.F.T.R.2d (RIA) 6303, 1981 U.S. App. LEXIS 17190

• Court: Court of Appeals for the Ninth Circuit
• Decided: October 2, 1981
• Docket: 79-7607
• Status: Published

Opinions

EUGENE A. WRIGHT, Circuit Judge:

I

Mattias Arnold Madsen was lost at sea in 1973. His wife, Norma, received the proceeds of a life insurance policy.

The Madsens were domiciled in Washington. Before buying the policy in 1967 they discussed the estate tax consequences with their insurance agent. All agreed that Norma would own the policy and make premium payments. Though community funds would be used, they determined that no gift tax return had to be filed because Mattias’ interest in the payments was under $3,000.

None of the proceeds were included in Mattias’ estate. The Commissioner noted an estate tax deficiency, reasoning that, because the policy was community property, one-half of the proceeds should have been included in the estate. The Tax Court agreed.

II

Life insurance proceeds are includable in an estate to the extent that the deceased “possessed at his death any of the incidents of ownership.” I.R.C. § 2042(2). “Incidents of ownership” are determined by reference to the policy and state law. Lang v. Commissioner, 304 U.S. 264, 267, 58 S.Ct. 880, 881, 82 L.Ed. 1331 (1938); 26 C.F.R. § 20.2042-1(c)(5).

Section 48.18.440, Revised Code of Washington, provides:

Spouse’s Rights in life insurance policy. (1) Every life insurance policy heretofore or hereafter made payable to or for the benefit of the spouse of the insured . . . shall, unless contrary to the terms of the policy, inure to the separate use of such spouse ....

As the case comes to us, both the policy and state law appear to support the contention that Mattias had no incidents of ownership at his death.

The Tax Court relied on its decision in Meyer v. Commissioner, 66 T.C. 41 (1976), aff'd without opinion, 566 F.2d 1182 (9th Cir. 1977), which in turn relied upon Schade v. Western Union Life Insurance Co., 125 Wash. 200, 215 P. 521 (1923). Meyer held that § 48.18.440 affects the spouse’s interest in the proceeds of a life insurance policy but not the ownership of the policy.

At issue in Schade was the validity of a policy provision reserving to the insured the right to change beneficiaries. The court held the provision valid. Instead of relying on the statutory language giving effect to “the terms of the policy,” however, the court stated that “the statute defines the rights of the beneficiary as compared with the rights of creditors in the proceeds and avails of a policy . . . . ” 125 Wash, at 207, 215 P. 521 (emphasis added).

Nevertheless, we are not persuaded that Schade is controlling. It is fairly read as holding only that the statute does not affect the husband’s ownership interest as it appears in the policy.¹

Here, the policy apparently did not give Mattias the right to change beneficiaries or any other incidents of ownership. The statute appears to make the policy Norma’s separate property and we are not persuaded that the Washington Supreme Court has held otherwise.²

Ill

Because the question is one of state statutory construction and the position of the state court is uncertain, certification is appropriate. See Mutschler v. Peoples National Bank, 607 F.2d 274, 278-79 (9th Cir. 1979); Barnes v. Atlantic & Pacific Life Insurance Co., 514 F.2d 704, 706 (5th Cir. 1975).

Therefore, pursuant to RCW § 2.60.010 et seq., we shall certify the following question to the Washington Supreme Court:

In Washington, is a life insurance policy naming the deceased spouse as the insured and the surviving spouse as beneficiary and owner, though the premiums were paid out of community funds, the separate property of the surviving spouse?

Pursuant to § 2.60.010(4)(a), the parties are ordered to prepare a stipulation of facts and file it with the clerk within twenty (20) days of the date of this opinion.

The parties will also prepare an Excerpt of Record for inclusion in the certified record and file it with the court within twenty (20) days. It should contain the insurance policy.

Pursuant to Washington Rules App.Proc. 16.16(e)(1), the court will designate appellant Madsen as the party to file the first brief in the Washington Supreme Court after the question is certified.

1 . The Tax Court also relied on In re Towey’s Estate, 22 Wash.2d 212, 155 P.2d 273 (1945). There, too, the question was whether the husband’s exercise of his right, pursuant to the terms of the policy, to change beneficiaries was valid.

2 . The dissenting opinion discusses the effect of Francis v. Francis, 89 Wash.2d 511, 573 P.2d 369 (1978), and concludes that it contains a definitive answer by the Washington court to the question we confront.

We do not read Francis to address the effect of RCW § 48.18.440(1) on the ownership of an insurance policy. On the contrary, we believe Francis considered the right of an insured to “give to persons other than his wife one-half the amount of the proceeds.” 89 Wash.2d at 515, 573 P.2d at 371. That question is not presented here.

Perhaps the Washington Supreme Court will elect to employ its reasoning in Francis in deciding the question we certify to it. We remain unconvinced that Francis or any other case sufficiently states the Washington interpretation of RCW § 48.18.440(1).

Because we certify the determinative question to the state court, we do not desire to place that court in the position of choosing between our analysis and one of its own. We leave the analysis of Francis v. Francis to the Washington Supreme Court.