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Estate of Montgomery v. Commissioner

United States Tax Court
56 T.C. 489 (1971)

Written by Eric Miller, JD

Facts

Lafayette Montgomery created two irrevocable trusts for the benefit of his grandchildren. Montgomery purchased a combined life-annuity and life-insurance package from National Life Insurance Company (National). The annuity policy, for which Montgomery paid a premium of $2.2 million, was to give Montgomery roughly $272,000 per year over the remaining years of his life. The life-insurance policies were for a combined $2 million. Montgomery assigned the life-insurance policies to the two irrevocable trusts—$1 million each—and total yearly premiums of $265,000 were paid through the trusts. Following Montgomery’s death, the commissioner of the Internal Revenue Service (defendant) determined that the proceeds of the life-insurance policies were includable in Montgomery’s gross estate under § 2039 of the tax code. The estate (plaintiff) contested this determination in United States Tax Court, pointing to a parenthetical exception in § 2039 for life-insurance proceeds.

Rule of Law

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Holding and Reasoning (Withey, J.)

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