Keeter v. United States

Bessie Shaw was married to Daniel Shaw. Daniel had a life-insurance policy for $100,000 that he had purchased in 1919. In 1926, Daniel chose a settlement option that called for four $25,000 payments on his death to trusts for Bessie and the three Shaw children. Interest would be paid to each for life, and on the death of any recipient, the principal and accrued interest would be paid to the executors or administrators of the decedent. Daniel died in 1930. Bessie died in 1964. Bessie’s will provided that the residue of her property was to be divided evenly among her daughters. A general power of appointment created before October 21, 1942, was to be included in the gross estate of a decedent only if it was exercised. Daniel’s executor, Keeter (plaintiff), argued that the settlement option chosen by Daniel was not a general power of appointment by Bessie, as she never had the power to dispose of the insurance proceeds until after her death. Accordingly, Keeter did not include the funds paid to Keeter as executor—$25,000—in Bessie’s gross estate for estate-tax purposes. A prior decision in another circuit had held that under such a situation, as the proceeds were payable not by the decedent’s direction but by that of the original holder of the insurance contract, no general power of appointment was exercised. The government (defendant) disagreed, arguing that Bessie making a will was simply the conduit by which her power of appointment had been exercised, and it assessed a deficiency for the estate-tax return. The lower court ruled in favor of Keeter, and the government appealed.