## Facts

- Robert B. Margrave, an Omaha, Nebraska resident, created a revocable trust in 1966, retained the income interest, and reserved an unrestricted power to revoke or amend the trust during life.
- In 1970, Margrave’s wife applied for and owned a life insurance policy on Margrave’s life; Margrave signed the application as the insured.
- The policy designated the trust’s trustee (a bank) as beneficiary, and the beneficiary designation was never changed.
- Margrave’s wife, as policy owner, held all contractual rights under the policy and paid all premiums from her own funds.
- After Margrave’s death in 1973, the insurer paid $84,583 in proceeds to the bank as trustee of the revocable trust.
- The Commissioner determined an estate tax deficiency by including the policy proceeds in the gross estate; the Tax Court ruled for the estate, and the Commissioner appealed.

## Issues

1. Whether the policy proceeds were includible in the gross estate under I.R.C. § 2042(2) because the decedent possessed any “incidents of ownership” in the policy at death.
2. Whether the decedent’s retained power to revoke or amend the revocable trust constituted a general power of appointment over the policy or its proceeds under I.R.C. § 2041, requiring inclusion in the gross estate.

## Decision

- The Eighth Circuit affirmed the Tax Court’s judgment for the estate.
- The decedent did not possess incidents of ownership in the policy under § 2042(2) because all enforceable policy rights were held by the spouse as owner.
- The decedent did not possess a general power of appointment under § 2041 over the policy or proceeds merely by retaining the power to amend or revoke the trust named as beneficiary.
- The life insurance proceeds were not includible in the decedent’s gross estate.

## Legal Principles

- For § 2042(2), “incidents of ownership” require legally enforceable rights in the policy itself (e.g., to change beneficiaries, assign, surrender, or borrow), not control over a separate instrument that may receive the proceeds.
- An insured’s signature on the application, without ownership or contractual rights, does not constitute an incident of ownership for § 2042(2).
- A reserved power to amend or revoke a trust that is designated as beneficiary does not, by itself, create a § 2041 general power of appointment over a policy or proceeds when the decedent lacked policy rights and the trust’s interest in the proceeds arose only upon payment after death.
- Estate inclusion under §§ 2042 and 2041 turns on the decedent’s legally cognizable control over the policy or property at issue, not indirect influence over eventual disposition through a revocable trust.

## Conclusion

The court held that life insurance proceeds payable to a revocable trust were excluded from the gross estate where the spouse owned the policy, retained all contractual rights, and paid the premiums, and the decedent’s retained power to revoke or amend the beneficiary trust did not supply policy incidents of ownership or a general power of appointment.


Estate of Margrave v. Commissioner, 618 F.2d 34 (8th Cir. 1980)