57 T.C. 837">*837 OPINION

Respondent determined a deficiency in petitioner's estate tax in the amount of $ 51,946.26. The sole issue remaining for our determination is whether, at the time of his death, decedent possessed any of the incidents of ownership in certain policies insuring his life within the meaning of section 2042. ¹

1972 U.S. Tax Ct. LEXIS 162">*164 57 T.C. 837">*838 All of the facts have been stipulated. The stipulations, together with the exhibits attached thereto, are incorporated herein by this reference.

Petitioner is the executor of the Estate of Walter Dawson, who died on October 11, 1965. His legal residence at the time of filing the petition herein was Somerset, N.J. The estate tax return was filed with the district director of internal revenue, Newark, N.J.

The decedent and his wife, Rose M. Dawson (hereinafter Rose), died as a result of an automobile accident that occurred on October 11, 1965, at approximately 12:40 p.m. Rose died shortly thereafter at 1 p.m. and decedent died an hour later at 2 p.m., without ever having regained consciousness after the accident. Prior to their deaths, decedent and Rose maintained their residence in Toms River, N.J.

Rose died testate and her will was admitted to probate by the surrogate of Ocean County, N.J. She named decedent as her executor and Walter Dawson III as alternate executor in the event that decedent was unable to serve. Letters testamentary under her will were issued to Walter Dawson III, who qualified, undertook, and has since that time been performing the duties of said1972 U.S. Tax Ct. LEXIS 162">*165 office.

Rose's will provided, in pertinent part, as follows:

First, after my lawful debts are paid, I give, devise and bequeath all of the rest, residue and remainder of my property of whatseover kind or nature and wheresover situate or being of which I may die seized or possessed or to which I may be entitled to my husband, Walter Dawson.

Other than a requirement of survivorship, the will contained no conditions precedent to the vesting in interest of Rose's residuary estate in decedent.

Immediately prior to her death, Rose owned all of the incidents of ownership in certain life insurance policies on the life of decedent. The policies referred to and their respective values for estate tax purposes on the applicable valuation date are as follows:

Rose was the principal beneficiary of the above policies. Since she1972 U.S. Tax Ct. LEXIS 162">*166 predeceased the insured, the proceeds were paid to the alternative beneficiaries named in the policies. Fifty percent of the proceeds went to decedent's children by a prior marriage and fifty percent to four nieces of Rose.

57 T.C. 837">*839 At the time of decedent's death, the aggregate cash value of the aforementioned policies was $ 37.54. There was a premium obligation outstanding and unpaid of $ 1,158.45, thereby creating a net cash value of minus $ 1,120.91.

The sole question herein is whether, under section 2042(2), ² the proceeds of the aforesaid life insurance policies are includable in decedent's gross estate. ³

1972 U.S. Tax Ct. LEXIS 162">*167 It is clear that the term "incidents of ownership," as used in section 2042, has far broader connotations than ownership of the policy in the technical legal sense. The term was first embodied in section 404 of the Revenue Act of 1942, which amended section 811(g) of the Internal Revenue Code of 1939. The accompanying committee reports provide an illustrative, but not exclusive, list of "incidents of ownership," which has been incorporated by respondent in section 20.2042-1 (c)(2), Estate Tax Regs. ⁴ See H. Rept. No. 2333, 77th Cong., 2d Sess., p. 163 (1942), 1942-2 C.B. 491. S. Rept. No. 1631, 77th Cong., 2d Sess., p. 235 (1942), 1942-2 C.B. 677.

1972 U.S. Tax Ct. LEXIS 162">*168 It is also clear that when Congress, in enacting section 2042 of the 1954 Code, eliminated "payment of premiums" as a factor in determining the includability of life insurance proceeds in the gross estate, leaving "incidents of ownership" as the sole criterion, it was attempting to focus on the power to dispose of property. United States v. Rhode Island Hospital Trust Co., 355 F.2d 7, 10 (C.A. 1, 1966); Estate of James H. Lumpkin, Jr., 56 T.C. 815">56 T.C. 815, 56 T.C. 815">822, 56 T.C. 815">828 (1971), on appeal (C.A. 5, Nov. 17, 1971); H. Rept. No. 1337, 83d Cong., 2d 57 T.C. 837">*840 Sess., pp. 91, A316-A317 (1954); S. Rept. No. 1622, 83d Cong., 2d Sess., pp. 124, 472-473 (1954). See also Chase Nat. Bank v. United States, 378 U.S. 327">378 U.S. 327 (1929).

Both parties agree that the nature of decedent's interest in the life insurance policies involved herein should be determined under New Jersey law. Respondent's position is that decedent, as residuary legatee under Rose's will, acquired a vested interest in the policies at the time of Rose's death, and that said interest carried with it the requisite incidents of ownership, including1972 U.S. Tax Ct. LEXIS 162">*169 the right to name the beneficiaries thereunder. Petitioner concedes that decedent's rights as residuary legatee were vested in interest at the time of Rose's death. He argues, however, that, under the law of New Jersey, legal title to all personalty owned by a testatrix passes to her executor as of the moment of death and that decedent's rights as legatee in any personalty as such were inchoate in nature until administration of the estate had been completed.

In approaching our decision herein, we think it important to note what this case does not involve. First, we do not have a situation where the decedent possessed any incidents of ownership in a fiduciary capacity. Clearly, he did not qualify as executor and, under the circumstances, it is clear that he never could have qualified prior to his death. Consequently, we are not faced with the issue which confronted us in Estate of Harry R. Fruehauf, 50 T.C. 915">50 T.C. 915 (1968), affd. 427 F.2d 80 (C.A. 6, 1970), and, in any event, respondent makes no claim based upon any powers decedent would have possessed had he qualified as executor.⁵ Compare Estate of Hector R. Skifter, 56 T.C. 1190">56 T.C. 1190, 56 T.C. 1190">1197 (1971),1972 U.S. Tax Ct. LEXIS 162">*170 on appeal (C.A. 2, Feb. 1, 1972).

Second, Rose died testate, the provision in her will in favor of decedent was a residuary and not a specific legacy, and the property involved was personalty and not realty. Consequently, we need not explore the nuances of devolution of title and rights, which might be involved if any of such other factors were present. Compare Hardenbergh v. Commissioner, 198 F.2d 63 (C.A. 8, 1952); Brown v. Routzahn, 63 F.2d 914 (C.A. 6, 1933); Estate of Anna Hart Kinney, 39 T.C. 728">39 T.C. 728, 39 T.C. 728">732 (1963); Hayes v. Hayes' Ex'x, 45 N.J. Eq. 461">45 N.J. Eq. 461, 17 A. 634 (Ch. 1889),1972 U.S. Tax Ct. LEXIS 162">*171 affirmed per curiam sub nom. Hayes v. Berdan, 47 N.J. Eq. 567">47 N.J. Eq. 567, 21 A. 339 (Err. & App. 1891); see 5 Clapp, New Jersey Practice, Wills and Administration, sec. 391, p. 571 (3d ed. 1962).

Finally, we are not concerned with whether the decedent's rights in Rose's residuary estate were sufficiently vested "in interest" so that 57 T.C. 837">*841 his claim with respect thereto could not be defeated by his early death. Clearly, they were so vested. ⁶1972 U.S. Tax Ct. LEXIS 162">*172 The question herein is whether his rights were sufficiently vested "in possession" so as to justify the conclusion that he "possessed at his death any of the incidents of ownership" in the policies. (Emphasis added.) Sec. 2042. The Supreme Court of the United States has defined the applicable test as depending upon "a general, legal power to exercise ownership." (Emphasis added.) See Commissioner v. Noel Estate, 380 U.S. 678">380 U.S. 678, 380 U.S. 678">684 (1965). ⁷

Against the foregoing background, we proceed to an examination of New Jersey law to determine what "legal power," if any, decedent possessed to effect the disposition of the economic benefits provided by the policies in question.

In describing the role of an executor and the purpose of administration, the highest court of New Jersey has said:

One definition of an executor is "that he is one to whom a testator has given his goods, chattels, and personal estate, for the purpose of paying all his debts; * * *." Farr v. Newman, 4 T.R. 621, 100 Eng. Rep. 1209, 2 Eng. Rul. Cas. 135 (1792).1972 U.S. Tax Ct. LEXIS 162">*173 The purpose of administration is to collect and protect the assets and pay the debts, funeral expenses, and all obligations falling upon the estate, and then to make proper distribution among those entitled to the residue, under the will or by law, as the case may be; and to this end the title to the personal property in possession or right of action vests in such personal representative in trust. [In Re Sapery, 28 N.J. 599">28 N.J. 599, 147 A.2d 777, 782 (1959). Emphasis added.] ⁸

The decided cases clearly establish that, under New Jersey law, a residuary legatee acquires only a qualified equitable right to what remains of the estate after1972 U.S. Tax Ct. LEXIS 162">*174 payment of the just debts, funeral expenses, and administration expenses of the decedent and that this right is inchoate in nature prior to the completion of administration. In 28 N.J. 599">Re Sapery, supra;Buchanan v. Buchanan, 75 N.J. Eq. 274">75 N.J. Eq. 274, 71 A. 745 (Err. & App. 1909); Montclair Nat. Bank & Trust Co. v. Seton Hall Col. of M., 96 N.J. Super. 428">96 N.J. Super. 428, 233 A.2d 195 (App. Div. 1967); Ryder v. Ryder, 136 N.J. Eq. 279">136 N.J. Eq. 279, 41 A.2d 278 (Ch. 1945); Hayes v. Hayes' Ex'x, supra;Miller v. Henderson, 10 N.J. Eq. 320">10 N.J. Eq. 320 (Ch. 1855); see Phair v. Federal Deposit Ins. Corporation, 74 F. Supp. 693">74 F. Supp. 693, 74 F. Supp. 693">696 (D.N.J. 1947); 5 Clapp, New Jersey Practice, Wills and Administration, 57 T.C. 837">*842 sec. 391, p. 571 (3d ed. 1962); 6 Clapp, New Jersey Practice, Wills and Administration, sec. 1022, pp. 565-567 (3d ed. 1962); 6 Page, Wills, sec. 59.2, pp. 383-384 (Bowe-Parker rev. 1962). Compare In Re Grattan's Estate, 78 N.J. Eq. 225">78 N.J. Eq. 225, 78 A. 813 (Prerog. 1911),1972 U.S. Tax Ct. LEXIS 162">*175 where the wife owned the insurance and died intestate, the court holding that the rights passed to the surviving husband as the person entitled to administration.

The New Jersey cases relied upon by respondent are clearly distinguishable. In 96 N.J. Super. 428">Montclair Nat. Bank & Trust Co. v. Seton Hall Col. of M., supra, the issue was whether the legatee's rights vested in interest, not whether they vested in possession. The same issue was involved in In Re Howe's Estate, 112 N.J. Eq. 17">112 N.J. Eq. 17, 163 A. 234 (Prerog. 1932). Respondent's argument that New Jersey law does not favor leaving title to property in limbo is beside the point. That axiom is applied in the context of determining whether there has been a vesting in interest and has no application to the issue herein, namely, whether possession of, ownership of, and power of disposition over the insurance policies devolved upon decedent prior to his death. See fns. 4, 5, and 6 supra. In 45 N.J. Eq. 461">Hayes v. Hayes' Ex'x, supra, the court did no more than hold that a legatee of specific property, i.e., 1972 U.S. Tax Ct. LEXIS 162">*176 a debt owed to decedent, could under certain circumstances compel the executor to proceed to collect the debt. ⁹ See 5 Clapp, New Jersey Practice, supra.

We hold that where, as is the case herein, a decedent at the time of his death neither has ownership of the policies (in the "technical legal sense") nor possesses any of the substantive incidents of ownership, i.e., the powers of disposition, section 2042 is inapplicable.

To reflect certain concessions by the parties,

Decision will be entered under Rule 50.