Appeal from an order of the Circuit Court for Milwaukee County: Robert J. Miech, Judge.
Petition to Review Denied.
Wedemeyer, P.j., Decker and Moser, JJ.
The opinion of the court was delivered by: Wedemeyer
The Estate of Walter A. Laev, Jr. (Estate) appeals from an order of the trial court entered November 11, 1982, which denied the Estate's petition for a redetermination of the inheritance tax calculated by the Wisconsin Department of Revenue (Department). We affirm the trial court's determination that the amount of insurance a decedent was required to maintain for the benefit of his children under a divorce judgment is includible in the decedent's taxable estate for Wisconsin inheritance tax purposes; however, we reverse the trial court's determination that under sec. 72.14, *fn1 Stats., payment by a life insurance company of insurance proceeds pursuant to a divorce judgment does not entitle the Estate to a deduction for the amount paid.
The relevant stipulated facts reveal that Walter A. Laev, Jr., (decedent), owned at the time of his divorce in 1977, eleven life insurance policies with a total face value of $248,950. The judgment of divorce provided that:
13. Defendant is awarded all his life insurance policies and shall change the beneficiary designations on said policies so that the children of the parties, Walter Gary Laev and Loni Jean Laev are designated beneficiaries for at least $100,000.
In compliance with this provision, decedent designated his children, Gary and Loni, as beneficiaries of all of his life insurance policies. He kept all of the policies in effect until his death in 1979. Subsequent to the divorce, in October, 1978, decedent obtained a loan against one of the policies in the sum of $4,902.55. As a result of his death, decedent's two children received $213,394.13 of insurance proceeds. This sum took into account paid up additions and repayment of any outstanding loans. When the Estate filed its inheritance tax return, it included the total value of the life insurance policies in the sum of $252,546.19 and paid the resulting tax of $17,369.83. The Department issued its certificate of determination of inheritance tax affirming the submitted amount of the taxable estate and the tax paid. Shortly thereafter, upon review, the Estate filed an amended inheritance tax return claiming that the taxable estate ought to be reduced by the $200,000 of insurance proceeds paid to the children because of the restriction placed on the insurance policies by judgment of divorce. It requested a refund to reflect the decrease in the value of the taxable estate. At the same time the Estate filed a petition for redetermination of inheritance tax pursuant to sec. 72.30(4), Stats. *fn2
The trial court held that the life insurance proceeds at issue were properly included in decedent's taxable estate under sec. 72.12(7), Stats. *fn3 It also held that these proceeds were not deductions which the Estate was entitled to as payment of debt under sec. 72.14(2), Stats.
The Estate raises two issues on appeal:
1. whether the amount of insurance the decedent was required to maintain for the benefit of his children under the divorce judgment is includible in the decedent's taxable estate for inheritance tax purposes; and
2. whether under sec. 72.14, Stats., the payment by a life insurance company of a designated amount of insurance proceeds pursuant to a divorce judgment entitled the Estate to deduction for the proceeds paid.
INCLUSION OF INSURANCE IN TAXABLE ESTATE
In Wisconsin the inheritance tax is a tax on the right to receive property. The taxing event is the transfer of certain classifications of property as defined by statute. Transfers which qualify for the imposition of the tax are enumerated in sec. 72.12, Stats. Here the transfer under inquiry is the payment of certain proceeds of life insurance by the decedent's insurer to his children. Section 72.12, Stats., declares that a tax is imposed on a transfer of insurance proceeds when the proceeds are payable upon the death of the insured, and any of the legal incidents of ownership listed in the statute remain in the decedent.
Section 72.12(7), Stats. defines "legal incidents of ownership" as follows:
he right of the insured or the insured's estate to its economic benefits or the power of the insured to change the beneficiary, to surrender or cancel the policy, to assign it, to revoke an assignment, to pledge the policy for a loan or to ...