## Facts

- James H. Lumpkin, Jr. died in 1964 while employed by Humble Oil & Refining Co.
- Humble maintained a noncontributory group term life insurance policy providing “contingent survivor” benefits, including a $200 lump sum and periodic payments tied to one-half of the employee’s normal monthly compensation for a service-based period.
- The policy fixed the beneficiary order (surviving spouse, then minor children, then parents); Lumpkin could not select, change, or reorder beneficiaries.
- Lumpkin had a limited contractual power to affect the time and manner in which the proceeds would be paid (i.e., timing/deferral within the plan’s payment structure).
- The estate excluded the insurance proceeds from the federal gross estate; the Commissioner asserted a deficiency under I.R.C. § 2042.
- The Tax Court ruled for the estate; the Commissioner appealed.

## Issues

1. Whether an insured’s power only to affect the time and manner of enjoyment of life insurance proceeds, without any power to change beneficiaries, constitutes an “incident of ownership” under I.R.C. § 2042 requiring inclusion in the gross estate.

## Decision

- The Fifth Circuit reversed the Tax Court.
- The court held that Lumpkin’s power to alter the time and manner of payment was an “incident of ownership” under § 2042.
- The insurance proceeds were includible in Lumpkin’s gross estate, validating the Commissioner’s deficiency determination.

## Legal Principles

- Under I.R.C. § 2042, life insurance proceeds are includible in a decedent’s gross estate if the decedent possessed at death any “incident of ownership” in the policy.
- “Incidents of ownership” are not limited to formal title or the power to change beneficiaries; the term reaches any substantial retained control over the policy’s economic benefits.
- A power to control the timing or mode of payment to beneficiaries can materially affect the beneficiaries’ economic enjoyment and therefore qualifies as an incident of ownership.
- Possession of a single substantial incident of ownership is sufficient for inclusion under § 2042; multiple ownership powers are not required.

## Conclusion

The Fifth Circuit held that an insured’s retained power to control only the timing and manner of distributions under a group life insurance arrangement constitutes an incident of ownership under I.R.C. § 2042, requiring inclusion of the insurance proceeds in the decedent’s gross estate.


Estate of Lumpkin v. Commissioner, 474 F.2d 1092 (5th Cir. 1973)