## Facts

- Hector R. Skifter purchased nine life insurance policies on his own life.
- In 1961, Skifter assigned all interests in the policies to his wife, Naomi, retaining no interest or control.
- Naomi died several months later; her will placed her residuary estate, including the policies, into a testamentary trust.
- The trust paid income to the couple’s daughter, Janet, for life, with remainder provisions for other beneficiaries after Janet’s death.
- Naomi’s will named Skifter as trustee and granted him broad managerial powers over trust assets, including powers to sell, mortgage, invest, and reinvest.
- The will also authorized the trustee, in absolute discretion, to distribute all or part of principal to the current income beneficiary, even to the point of terminating the trust, and permitted disregard of rules requiring impartiality between income beneficiaries and remaindermen.
- Skifter died in 1964; a successor trustee was appointed.
- The executors excluded the insurance proceeds from Skifter’s gross estate; the IRS asserted an estate tax deficiency under I.R.C. § 2042(2).

## Issues

1. Whether a decedent’s broad powers as trustee over life insurance policies on his life—acquired only through a third party’s testamentary trust after the decedent previously assigned away all policy rights—constitute “incidents of ownership” under I.R.C. § 2042(2).
2. Whether life insurance proceeds are includible in the decedent’s gross estate when the decedent’s control over the policies exists solely in a fiduciary capacity and provides no personal economic benefit.

## Decision

- The Second Circuit affirmed the Tax Court’s decision for the Estate.
- The court held that the policy proceeds were not includible in Skifter’s gross estate under I.R.C. § 2042(2).
- Skifter did not possess “incidents of ownership” at death because his authority over the policies arose only as trustee under Naomi’s will, not as a policy owner or in a personal capacity.

## Legal Principles

- I.R.C. § 2042(2) includes in the gross estate insurance proceeds payable to beneficiaries other than the estate only if, at death, the decedent possessed “incidents of ownership” in the policy.
- “Incidents of ownership” focus on ownership-type powers to control policy economic benefits (e.g., change beneficiaries, surrender or cancel, assign, revoke an assignment, pledge, or borrow against the policy) held in the decedent’s personal capacity.
- Powers held solely in a fiduciary role as trustee, arising from another person’s independent transfer and trust arrangement after the insured has fully divested policy ownership, do not constitute incidents of ownership for § 2042(2) inclusion where the insured has no beneficial interest in the trust.

## Conclusion

Because Skifter completely assigned the policies to his wife and later held only fiduciary trustee powers under her testamentary trust—without any personal ownership rights or beneficial interest—he did not possess incidents of ownership at death, and the life insurance proceeds were excluded from his gross estate under I.R.C. § 2042(2).


Estate of Skifter v. Comm’r, 468 F.2d 699 (2d Cir. 1972)