Court Opinion

ID: 6862467
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:50:24.190095+00
Date Added: 2024-06-11T08:49:59.294135
License: Public Domain

BINGHAM, Circuit Judge
(dissenting in part).
This case presents the question whether the Commissioner of Internal Revenue was authorized to include the proceeds of seven policies on the life of the testator, King Upton, in his gross estate and impose thereon a tax under section 402 (f) of the Revenue Act of 1918. Four of these policies were assigned to his wife, provided she survived him. In two other policies his wife was the beneficiary in one and his son in the other. The remaining policy named the wife as beneficiary and provided that, if she did not survive him, it was payable to his children. This policy (the Connecticut one) contained a further provision giving the testator a recurrent power, the terms of which are hereafter given in full.
The testator died February 27, 1921, without having exercised the power at any recurrent period.
All of these policies are in excess of the $40,000 exemption on policies payable to beneficiaries other than to the estate of the decedent, provided for in section 402 (f) of the Act of 1918, and the main question in determining the right to include the avails of the Connecticut policy in the gross estate and subject them to taxation is whether, at the time of the testator’s death, he had an interest in the policy which passed to the beneficiary or a power which he could have exercised at the time of his death.
As to the first four policies (those of the Berkshire Life Insurance Company) and the other two (those of the Manhattan Life Insurance Company), I am in entire accord with the conclusion reached as to each in the opinion of the court, but as to the remaining one (the Connecticut policy), it does not seem to me that the testator, at the time of his death, had any interest in that policy which passed to the beneficiary or any power which he could then exercise for the benefit of his estate, and that, unless he had a power over the proceeds of this policy which he could then exercise, the Commissioner erred in including its avails in the decedent’s gross estate, for otherwise every interest in the policy vested in the beneficiary when it was taken out. Chase National Bank v. United States, 278 U. S. 327, 334, 49 S. Ct. 126, 73 L. Ed. 405, 63 A. L. R. 388.
The policy in question was for the sum of $5,000, and was payable to Annie Upton, the wife of the insured. It contained a cash surrender clause which might be exercised under certain conditions by the insured after the expiration of ten years from the date of the policy (May 22, 1883), and at the end of each five-year period thereafter, reading as follows:
“And at the end of ten years from the date hereof, or at the end of each period of five years thereafter, this Policy having been in force during such entire periods for the full sum first above named as insured hereby and not otherwise, this Company will pay a Cash Value therefor, to be ascertained by the Table of Cash Values endorsed hereon and hereby made a part of this Contract; such Cash Value to be payable at its said office upon surrender hereof within thirty days after the end of each such period, to, and this Policy to be first released and discharged to the satisfaction of said Company by King Upton, the Insured;” •
The policy having been taken out May 22, 1883, the end of the ten-year period was May 22, 1893, and the end of the last five-year period that occurred before his death and when the testator could have exercised the power, was May 22, 1918, at which time he had thirty days in which to do so. He did not exercise the power on May 22, 1918, or within thirty days thereafter, or at the end of any prior period; and from May 22, 1918, down to the time of his death, February 27, 1921, he had no power which he could have exercised over the avails of the policy for the benefit of his estate or for any one else. It therefore cannot be said that, at the time of his death, he had a power over the cash value of this policy which he then could have exercised and that, by his failure to do so, an interest passed to his wife. Had he lived until May 22, 1923, he would have acquired a power which he could then have exercised, ’but he did not live to that time and had no such power at the time of his death.
■It is fairly certain that the decision in Chase National Bank v. United States, supra, is not controlling here, for in that case *577the decedent had a power which he could have exercised at the time of his death for the. benefit of his estate, and his failure to do so transferred an interest to the beneficiary. Not so here.
Neither does it seem to me that the decision in Tyler v. United States, 281 U. S. 497, 50 S. Ct. 356, 359, 74 L. Ed. 991, 69 A. L. R. 758, is controlling here. There the relevant provisions of the taxing statute were sections 202 and 202 (c), Revenue Act 1916 (39 Stat. 756, 777, 778). In 202 (c) Congress manifested an intention to tax the interest of a deceased tenant by the entirety by specifically providing that the interest of a tenant by the entirety, except such part thereof as might be shown to have originally belonged to some other person and never to have belonged to the decedent, should be included in his gross estate; and the only question was whether Congress had the power to impose such a tax, inasmuch as, at common law, no interest in property held by husband and wife by the entirety passed at the death of either to the survivor. But Congress having specifically provided that such an estate should be included for taxation in the gross estate of a decedent, if created by him out of his estate, and it appearing that the estate by the entirety was created out of the decedent’s estate, and, as a matter of fact, though not as a matter of law, the estate of the wife was enlarged by the death of the husband, and “because of it, she, for the first time, became entitled to exclusive possession, use and enjoyment; * * * and became entitled to hold and enjoy it absolutely as her own; and * * * of disposing of the property by an exercise of her sole will,” the court, in that case, was of the opinion that Copgress had the power, under the Constitution, to tax such an interest. There the decedent, down to the time of his death, had an interest in the entirety which he could enjoy, including all the income. Cooley v. Commissioner (C. C. A.) 75 F.(2d) 188, decided January 31, 1935. But here the decedent had no interest in the policy or power of control over it which he could exercise at the time of death. The wife’s title to the proceeds of the policy was complete before his death. He could not at the time of death defeat it and his death did not perfect her title or enlarge her estate. The situation existing at the time of his death is or should be controlling, not what it might be at some other time.