## Facts

- Three consolidated refund suits involved individuals who held legal life estates created by wills under California law.
- The wills gave each life tenant broad authority to manage estate property, including powers to sell, invest, reinvest, and to consume or invade principal for the life tenant’s needs, maintenance, and comfort (and, in one will, also for certain family members).
- Remainder interests were devised to identified remaindermen (children or other family members), who were entitled to what remained at the life tenant’s death.
- Estate assets were sold during the life tenancies, producing capital gains.
- Each life tenant initially reported and paid federal income tax on the capital gains as if the life tenant were the owner, then filed refund claims asserting the gains were not taxable to the life tenant.
- The United States counterclaimed, arguing that if the life tenants were not taxable as owners, they were taxable as fiduciaries on the same gains.
- The district court granted summary judgment for the taxpayers on both the refund claims and the Government’s counterclaims, and the Government appealed.

## Issues

1. Whether a legal life tenant with broad powers to consume and control corpus is taxable as the owner of capital gains realized from sales of corpus assets.
2. If not taxable as owner, whether the life tenant is taxable as a fiduciary (trustee) on those capital gains under federal trust-income tax provisions.

## Decision

- The Ninth Circuit affirmed summary judgment for the taxpayers in all consolidated cases.
- The court held the life tenants were not taxable as owners on the capital gains from sales of corpus.
- The court rejected the Government’s alternative theory that the life tenants were taxable as fiduciaries on those gains.
- The taxpayers’ refunds were sustained and the Government’s counterclaims were denied.

## Legal Principles

- Federal income tax characterization of gains from property held under a will begins with the state-law allocation of interests; where state law allocates capital gains to principal for the benefit of remaindermen (subject to limited consumption powers), the life tenant is not treated as the beneficial owner of those gains.
- Broad management and consumption powers incident to a life estate do not, without more, convert the life estate into full ownership for purposes of taxing capital gains realized on corpus sales.
- A legal life estate with remainder is not treated as a trust or fiduciary relationship for federal income tax purposes merely because the life tenant’s control resembles trustee-like powers; extending trust-tax doctrines requires statutory basis.
- Trust-income tax concepts aimed at certain trust arrangements do not automatically apply to nontrust legal estates created by wills when the statutory requirements are not met.

## Conclusion

The court held that California life tenants with expansive powers over corpus were neither taxable as owners nor as fiduciaries on capital gains allocated to principal for remaindermen, and it affirmed refunds and rejection of the Government’s counterclaims.


United States v. De Bonchamps, 278 F.2d 127 (9th Cir. 1960)