Judge Nega only has to take a stroll through MD State law to find that the two (count ’em, two) life insurance policies taken out by the irrevocable trust in Estate of Larry Becker, Deceased, Gary C. Becker, Executor, T. C. Memo. 2024-89, filed 9/24/24, are true insurance policies, as to which the late Larry retained none of the benefits prohibited by Reg. Section § 20.2042-1(c)(2).

Judge Nega finds the drafting of the late Larry’s trusty estate planning attorney is bulletproof.

While the initial beneficiaries of the policies, via the trust, were the late Larry’s nearest and dearest, hence holders of an insurable interest, there followed an extensive series of give-and-goes with various LLCs controlled by the late Larry’s insurance broker, with promissory notes exchanged and paid among an apparent colleague of the late Larry, trusty insurance broker, and an unrelated funding operation, which was going to pay all premiums in exchange for 75% of the death benefit.

IRS claims step transaction; the real beneficiary was the unrelated funder, hence the policy was void (funder had no insurable interest), and the estate has a claim for whatever proceeds the funder got, and that money should be part of taxable estate per Section 2031 or 2042(2).

Judge Nega goes through the three (count ’em, three) step transaction tests. “Binding commitment” fails, because that applies when there’s a long time between steps and the parties have bound themselves to complete them, which isn’t the case here; the loans are one-and-done. “End result” also requires commitment, but that is subjective, and the facts here don’t square; note that IRS, changing theories between SNOD and answer, thus requiring different proof, gets BoP. “Interdependence” fails, as the policies were funded before the funder came on the scene, and the late Larry, still alive, had assets, and among the possibilities for take-out financing, he chose the most advantageous.

Of course, when the late Larry became the late Larry, there was a lawsuit between estate, the funder, trusty estate planning attorney, and trusty insurance broker. Job wouldn’t be surprised. https://biblehub.com/kjv/job/5-12.htm

IRS loses. MD law says that once there is an insurable interest in beneficiaries at inception, the policy can be assigned to anyone.

“However, as there has been no violation of Maryland’s insurable interest doctrine, there can be no chose in action under Md. Code Ann., Ins. § 12-201(d). Consequently, it matters not whether a potential claim under that section should be treated as an ‘incident of ownership’ under section 2042(2) or as ‘property’ under section 2033, such that its value must be included in the value of decedent’s gross estate under section 2031, as no such claim exists. Likewise, without an increase in the gross estate, there can be no offsetting deduction to the taxable estate under section 2053 for the amounts paid to LT Funding pursuant to the settlement agreement as a claim against the estate. See §2053(a)(3).” T.  C. Memo. 2024-89, at p. 20. (Footnotes omitted).