Estate of Joan Schnack, Deceased, and William D. Schnack v. Commissioner of Internal Revenue

FACTUAL AND PROCEDURAL BACKGROUND

The crux of this controversy involves whether decedent exercised control over the purchase of life insurance sufficient to trigger the application of 26 U.S.C. § 2035 (a). Joan Schnack lived in Sparks, Nevada where she managed the Schnacks’ co-owned businesses, and William Schnack lived in Weeds, California where he maintained a medical practice. Joan and William maintained one bank account, a joint checking account with rights of survivor-ship in Yreka, California. The bank account was funded with earnings from both partners and with income from jointly owned assets. Although the Schnacks experienced marital difficulties and primarily lived apart, Joan managed their personal finances and wrote most of the checks.

In 1978, insurance agents contacted the Schnacks about their insurance needs. William Schnack was initially not interested in obtaining life insurance. The agents continued to contact Joan, and received permission from her to obtain financial information from the Schnacks’ accountant. On November 10, 1978, the agents met with Joan and William and advised them that in the event of death their estates would face severe liquidity…