ROBERT P. ANDERSON, Circuit Judge:
On June 14, 1965, Warren and Virginia Horton and Charles and Mary Ann Musk were killed when the car in which they were riding exploded after being struck by a tractor-trailer truck, owned by HMH Motor Service, while traveling
During 1966, the executor commenced wrongful death actions in the state courts of New York against HMH which were removed to the United States District Court for the Southern District of New York. The suits were settled for $320,000 before going to trial. The recovery of this amount, which was made on the assumption of instantaneous deaths, included nothing for ante-mortem pain and suffering.
Although the proceeds were held by the executor for distribution in accordance with the terms of the wills, they were not included by the executor in the decedents' gross estates for the federal estate tax; the Commissioner, however, determined that they should have been included and he accordingly assessed deficiencies against each of the estates. The deficiencies were paid and these suits were filed on the claims for refunds.
The district court 330 F.Supp. 997, held that the wrongful death recoveries, and therefore the legal interests which the Commissioner sought to tax, cf. Morgan v. Commissioner of Internal Revenue, 309 U.S. 78, 80-81, 626, 60 S.Ct. 424, 84 L.Ed. 585, 1035 (1940), were ascertained and determined under Connecticut law, a conclusion, the correctness of which, is not questioned on these appeals; and it further held that all sums recovered under Connecticut's wrongful death statutes
The crucial issue to be decided under § 2033 is whether or not the value of an action for wrongful death is
Simple logic mandates the conclusion that an action for wrongful death cannot exist until a decedent has died, at which point, he is no longer a person capable of owning any property interests. The Government's reply to this is that at the very instant of death the right of action arose which the decedent was then capable of owning at death. The only authorities cited for this position, however, are cases where preexisting property interests were valued as of the instant of death, but valuation at time of death of prior existing interests is a far different concern from that in this case where the property interest itself has sprung from the fact that the death has taken place.
While it is true that Congress may constitutionally place an excise tax on property created by death, as well as upon property transferred by death, Fernandez v. Wiener, 326 U.S. 340, 352, 66 S.Ct. 178, 90 L.Ed. 116 (1945); Tyler v. United States, 281 U.S. 497, 502, 50 S.Ct. 356, 74 L.Ed. 991 (1930), § 2033 does not read so broadly. In a discussion of the estate tax the Supreme Court described the scope of § 2033: "What this law taxes is not the interest to which the legatees and devisees succeeded on death, but the interest which ceased by reason of the death," Y.M.C.A. of Columbus, Ohio v. Davis, 264 U.S. 47, 50, 44 S.Ct. 291, 292, 68 L.Ed. 558 (1924); see also, Nichols v. Coolidge, 274 U.S. 531, 537, 47 S.Ct. 710, 71 L. Ed. 1184 (1927). Where, as here, there was no property interest in the decedent which passed by virtue of his death, but rather one which arose after his death, such an interest is not property owned at death and not part of the gross estate under § 2033, cf. Mandel v. Sturr, 266 F.2d 321, 324-325 (2 Cir. 1959); Note, "Estate Taxation of Contract Rights Subject to Conditions Precedent," 67 Yale L.J. 467, 470-73 (1958).
This construction of the relevant statutes is supported both by Connecticut law and Treasury Department Revenue Rulings. The Connecticut Supreme Court has stated that under Connecticut statutes "no person, during his lifetime, can possess an action or right of action embracing, as elements of damage, his own death or any of its direct consequences," Foran, supra, 153 Conn. n. 2 at 360, 216 A.2d at 641. Connecticut General Statute § 45-280 specifically states that wrongful death proceeds are not part of the gross estate for state succession tax purposes, and the Probate Court Administrator, a Connecticut Superior Court Judge, has ruled that
The Treasury Department has issued three Revenue Rulings concerning the inclusion of wrongful death proceeds under § 2033, all of which hold that the proceeds are not part of the gross estate. In this case, the Government tries to distinguish them because they concerned rights of action arising under New Jersey and Virginia state law and the federal Death on the High Seas Act, 46 U.S.C. § 761; however, the rationale of those rulings is fully applicable here. In Rev.Rul. 54-19, 1954-1 Cum.Bull. 179, 180, the Department stated: "Inasmuch as the decedent had no right of action or interest in the proceeds at the time of his death, nothing `passed' from the decedent to the beneficiaries. Accordingly, the amounts recovered by the beneficiaries would not be includible in the decedent's gross estate for Federal estate tax purposes." It held that such proceeds were not part of the gross estate in Rev.Rule. 68-88, 1968-1 Cum.Bull. 397, 398, because "[t]he right of action for wrongful death does not accrue until death occurs," and in Rev.Rul. 69-8, 1969-1 Cum.Bull. 219, because "[t]he decedent in his lifetime never had an interest in either the right of action or the proceeds." See also Rev.Rul. 55-581, 1955-2 Cum.Bull. 381, holding that an allotment paid by the armed services to designated beneficiaries of servicemen who die in active duty is not part of the gross estate; and Rev.Rul. 55-87, 1955-1 Cum.Bull. 112, holding that a lump sum payment for funeral expenses to social security recipients is not taxable under § 2033.
As a second point on appeal, the Government argues that the wrongful death proceeds must also be included in the gross estate under § 2041 of the Code as "property with respect to which the decedent has at the time of his death a general power of appointment"
The Government claims that the wrongful death proceeds are subject to a § 2041 power of appointment because they are to be distributed under the terms of the decedents' wills as authorized by Connecticut General Statutes § 45-280. This, in effect, asserts that any property which is distributed according to a testamentary disposition is taxable as part of the gross estate, a view which enlarges the statute far beyond the purposes intended for it by Congress. A sufficient answer to the Government's position is that, at the very least, property subject to a § 2041 power of appointment must be in existence prior to the time of the decedent's death, cf. United States v. Merchants National Bank of Mobile, 261 F.2d 570, 573 (5 Cir. 1958).
Section 2041 was never intended to encompass within the gross estate what the Government now claims. If the Government were correct, then income earned during the administration of an estate and later distributed according to the terms of the will would be included in the value of the gross estate under § 2041, but it is abundantly clear that such income is not subject to the estate tax, Alston v. United States, 349 F.2d 87,
Moreover § 2041(a)(2) provides that "[a] disclaimer or renunciation of such a power of appointment shall not be deemed a release of such power." "If a decedent exercises this right [to disclaim], the value of the property as to which he has renounced the power will not be included in his gross estate", Jenkins v. United States, 428 F.2d 538, 550 (5 Cir.), cert. denied, 400 U.S. 829, 91 S.Ct. 59, 27 L.Ed.2d 59 (1970); see also, 26 C.F.R. § 20.2041-3(d)(6) (1972). Under the Government's theory, however, it would be impossible for the decedent to renounce his "general power of appointment" over the wrongful death proceeds, because they did not exist prior to his death.
The judgments of the district court are reversed and the cases remanded for the determination of the amounts of the refunds due to the respective appellants and for their costs.
Connecticut General Statutes § 45-280 reads as follows: