Evening star., 1935-06-26
WIDOWS MAY LOSE .
BY INSURANCE TAX.
Pursuit of Income Con-
ceivably Can Embrace
Life Policies.
BY DAVID LAWRENCE.

life savings, usually emoooled IN HE
insurance, can be protected against
confiscation.
Two days ago I received a letter
from a business man in Nebraska who
argued that the burden would be so
great he would feel inclined to cancel
his life insurance policies Today /
have a communication from Leon
Gilbert Simon, formerly president OF
the Life Underwriters Association
and an authority on inheritance tax
alton, who takes issue with the Ne
braskan's reasoning.
Simon says there Is no ground for
apprehension because all that man
has to do is to have his wife take out
the policy and pay the premiums with
money furnished her by the husband.
Then. in the event Of the husbands
death, the total amount Of the policy
is paid to her and there is no inher1-
tance tax.
Somewhat the same thing, OF
course, is practiced now by persons
who name a beneficiary and then es-
tablish what is really an irrevocable
trust which is set up in such way
that the beneficiary cannot be changed
by the person who is insured. But
the Congress has said that the pre-
miums in excess of $4,000 year con-
stitute a gift and as such are subject
to taxation.
Escape Device Provided.
Still, a gift tax on the premiums
last year Is not likely to be as big
burden as the inheritance taxes on
the full face value of the policy at
death, so this is the method now be-
ing used by many people who have
sought to avoid inheritance taxes.
Simon declares the Supreme Court
of the United States has held that
where the insured person does not
control or own the policies, the latter
cannot be construed as part OF the
estate of the insured. What he says
is legally right and would be COM
forting to persons who hold insurance
policies If they could be sure con-
stitutional form of government were
to be restored to the United States
in place of the present dictatorship.
in which decisions of the Supreme
Court are treated as scraps OF paper
by both the legislative and executive
branches of the Government.
If it suits the purpose OF the pres
ent administration to tax life insur-
ance policies in excess OF certain
amount, there will be no method OF
avoidance that could not somehow
come under the ingenious dragnet Of
We
the giving of money to mans wife
or a member of ones family for the
purpose of paying insurance premiums
would be a simple prohibition to write
into the law if it were desired by the
administration to overcome the avoid
ance of inheritance taxes. Today the
sales of stocks or bonds to ones wife
are banned as not being bona fide"
transactions for tax purposes.
Few Great Policies.
1T Is true that the holders OF large
insurance policies are relatively few
most insurance companies would feel
somewhat relieved If they did not
have to carry these large policies
The difficulties they have had with
suicides and with individuals of large
responsibility, whose wear and tear
due to business worry increases the
mortality record, make the life insur-
ance companies less interested nova
days in writing insurance policies Of
large amount. The customary rule is
a face amount eight times an annual
income, so that an income Of $25 900
would permit 100000 of insurance.
1t is also a fact that more than 90
per cent of the insurance policy
holders are in the very small amounts
Of from $4,000 to $4,000, which it is
expected by life insurance companies
would surely be subject to exemption
So the soundness of the life insurance
companies themselves is not involved.
Indeed, the administration will find
1t necessary very soon to announce its
attitude concerning exemptions and
the limits to be applied if uncertainty
is to be removed from the minds Of
the large bulk of policyholders
Life insurance has always been one
of the best ways to build an estate,
but Simon himself comedies that a
man Is poorly advised who makes his
''estate" the beneficiary and that un-
less the insured makes an assignment
to beneficiary and makes that as
signment irrevocable, he runs the
risk of heavy inheritance taxes on
large policies.
This brings up some interesting
domestic questions. A man might
outlive his wife. Does the fact that
he might recover by a will the right
to assign the policy to some one else
make the policy still within his con-
troll? Also, he and his wife might
become estranged. Can he recover
the policy? Or, to put it another
way, suppose he has a wayward son
or daughter who would be injured by
q large inheritance He could not
change the beneficiary without the
consent of his children.
Well, the simple truth is that for
large policies the freedom Of action
OF the insured who pays the premiums
will be impaired by the new legisla-
tion, especially # heavy inheritance
taxes are to be avoided. Small policy
holders, OF course, should have eXemp.
ton. and the numerous life insur-
ance agents throughout the country
will probably Elsis. upon it. But
what assurance has anybody now
adays that any exemption written by
one session Of Congress will not be
removed by the next session?
To touch life insurance and small
inheritances is 10 touch q Uoi,tical
handspring. The beneficiaries of most
life insurance policies are women.
They are the ones who will lave to
assert themselves If they wish to be
protected against @conflscation If their
estates, however large or however
small And unfortunately they can
not rely on the Constitution any
more, because this document is no
longer regarded as sacred in Wash
ington. so their only reliance lies in