Court Opinion

ID: 9638014
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:29:54.447204+00
Date Added: 2024-06-11T18:10:02.737915
License: Public Domain

SIBLEY, Circuit Judge
(dissenting).
I agree that Blaffer effected the transfer of the policies as a gift, and that he alone had the power to do it, and that the total *491cash surrender value of them was subject to the gift tax. But I think that as respects that surrender value he acted not for himself, but for himself and wife, being the manager of their community, and the tax thereby incurred fell equally upon them both. The community property laws of Texas, and their operation in connection with the tax laws of the United States, were authoritatively examined in Hopkins v. Bacon, 282 U.S. 122, 51 S.Ct. 62, 75 L. Ed. 249. It was said these laws provide that the husband shall have “power of management and control such that he may deal with community property very much as if it were his own. In spite of this it is settled that the wife has a present vested interest in such property. Her interest is said to be equal to the husband’s.” It was held that each was entitled to be separately taxed as respects community income. So they are to be separately taxed on community gifts, although the husband makes them. The gifts here were of rights incident to insurance policies on the husband’s lile, some taken out by him before and some after the marriage, but all, with minor exceptions, maintained by premiums paid out of community funds, and in all he had the right to change the beneficiary at will. I think the turning point in the case is that these policies have two aspects. In one aspect they were insurance, contracts to pay money at the insured’s death. In the other aspect they were an investment, contracts by the express provisions of which the insurance could at any time be exchanged for present cash, in amounts which increased with each premium paid. These latter contracts at the date of the gift aggregated $36,485. They had some resemblance to savings accounts. The transfer of pure term life insurance is hardly a valuable gift. Such insurance is not assets in bankruptcy, but only the cash surrender value is assets. Cohn v. Malone, Trustee, 248 U. S. 450, 39 S.Ct. 141, 63 L.Ed. 352; Cohen v. Samuels, 245 U.S. 50, 38 S.Ct. 36, 62 L. Ed. 143; Burlingham v. Crouse, 228 U.S. 459, 33 S.Ct. 564, 57 L.Ed. 920, 46 L.R.A., N.S., 148. The Gift Tax Act makes no special mention of insurance policie-s, but declares that when a gift is made in property the value thereof at the date of the gift fixes the amount of the gift. This is interpreted, Treasury Regulations 79 (5), to include the irrevocable assignment of a life insurance policy in the amount of the net cash surrender value. As in case of bankruptcy the pure insurance is disregarded and the cash surrender value is alone regarded. Whose cash surrender value was it — Blaffer’s, or the community’s? I answer, the community’s. If instead of giving it away he had collected it, without doubt it would be community property. If Blaffer had gone into bankruptcy, without doubt this surrender value would be assets of the community estate, and not his own. Community money paid in premiums created this value. By every reasonable test this cash surrender value, which alone is regarded as tangible enough for its transfer to be presently taxed, belongs to the community.
There is no authority in point to the contrary.1 There are a number of Texas cases, stemming from Martin v. McAllister, 94 Tex. 567, 63 S.W. 624, 56 L.R.A. 585, holding that the proceeds of insurance on the life of a husband or a wife payable to the other do not at the death of the insured fall into the community. The court gives as the reason that such proceeds arise only on the death of the spouse, which terminates the community, and are not property “acquired by either the husband or wife during marriage” so as to be community property within the statute defining it. Revised Civil Statutes, Art. 4619, subd. 1, Vernon’s Ann.Civ.St. art. 4619, subd. 1. Where policies, as these do, provide for a contractual cash surrender value, the community is not dissolved by death before the right can mature. The right is a property fully acquired during the existence of the community, the money can be called in at any time. That is why it has a present tangible value — resembling, I repeat, a savings account. I do not think the case of Fain v. Fain, Tex.Civ.App., 93 S.W.2d 1226, which dealt with a settlement in a divorce case, ought to control this case where there is no divorce but the community continues. The Fain case is by an inferior court and was rested on cases which themselves dealt with the proceeds of insurance, not with cash surrender values, and which went largely on the idea that in case of divorce, as in case of death, the community was ended and the wife had no further insurable interest in her husband’s life. Here the United States are taxing the transfer of a present right to collect at will $36,485, *492neither death nor divorce nor the proceeds of insurance being involved. It seems to me that the right belongs to the community, that the community gave it away, that the community was made poorer by parting with it, and the community owes the tax on the transfer of this right.

 In Louisiana the view has been taken that the community owns the cash surrender value. Tulane Law Review, Vol. XIII, p. 424.