Court Opinion

ID: 9636787
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:42:45.229179+00
Date Added: 2024-06-11T18:09:49.411449
License: Public Domain

SIBLEY, Circuit Judge
(dissenting). Much administrative and judicial travail can, I think, be avoided by applying the simple, plain words of the statute which have been in it since 1918, (See Lewellyn v. Frick, 268 U.S. 238, 45 S.Ct. 487, 69 L.Ed. 934), which require to be included in the gross estate of a decedent the value of all property, “(g) To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life”. This court has very recently been admonished that plain words in an Act of Congress are to be given their full effect by the courts notwithstanding serious doubts of constitutionality may arise, and that the question of constitutionality ought to be faced and *743decided and not evaded by construction. United States v. Sullivan, 68 S.Ct. 331. The words here are plain and no question of constitutionality is engendered by their full application.
The Commissioner here included the net amount received by “other beneficiaries” (the $40,000 exemption having been exhausted by other insurance) on these policies undeniably taken out by the decedent on his own life with all premiums paid by him, on two grounds: “The value of the proceeds * * * formed a part of his gross estate within the meaning of Section 811(g) of the Internal Revenue Code. In the alternative * * * for the reason that they (the policies) were transferred in trust * * * in contemplation of, or intended to take effect in possession or enjoyment at or after his death within the meaning of Section 811(c) of the Internal Revenue Code”. The Tax Court wholly ignored the former ground and sustained the latter. I think the former plainly good.
There was some ambiguity in the words “taken out by the decedent on his own life” as to whether they referred to the application for and issuance of the policy, or to the payment of the premiums. It was concluded that the premiums were the most substantial matter, and regulations to that effect were upheld in Lang v. Commissioner, 304 U.S. 264, 58 S.Ct. 880, 82 L.Ed. 1331, 118 A.L.R. 319, and confirmed by the amending Act of 1942. There is no such question here, for the deceased made all the applications, the policies were all issued to him, and he paid all the premiums, for the most part single premiums. At first the policies were payable to “Executors, administrators or assigns” of the decedent, but under a statute of Florida the proceeds were not “receivable by the executor” but belonged to his wife and children, though subject to other disposition by the insured during his life. If the policies had so continued till his death the first clause of Sect. 811(g) would not have applied, as we held in Webster v. Commissioner, 5 Cir., 120 F.2d 514. But the second clause of Sect. 811(g) as to such insurance “receivable by other beneficiaries” would have applied, as was recognized in a case under a similar State statute in Proutt’s Estate v. Commissioner, 6 Cir., 125 F.2d 591. But within two weeks after procuring and paying for the last policy the decedent assigned them all to trustees for his wife and children, reserving no right or power in himself. The Florida statute no longer has any application, for the policies were no longer payable to the insured’s estate.
The effect of the assignments was to substitute the assignees as beneficiaries, and to vest in them the power and control over the insurance which the insured had before. See Bingham v. United States, 296 U.S. 211, at page 217, 56 S.Ct. 180, 80 L.Ed. 160. There was nothing about the trust itself to make it revocable or retain any interest in the trustor, so the assignments stand as absolute. Our question is, Do insurance policies taken out by the decedent on his own life under Sect. 811(g) cease to be such if they are assigned by way of gift to trustees for the beneficiaries ?
The statute does not say so. To its clear words must be added a qualification, “provided the decedent did not assign them to his beneficiaries before dying”. Now it appears from Treasury Decision 5032, issued Jan. 10, 1941, that until that date Regulation 80, Article 27, touching the provision under discussion, had added to the statutory words these: “if the decedent possessed at the time of his death any of the legal incidents of ownership”. This important narrowing of the statute was, I believe, beyond the regulatory power of the Treasury Department. The precise question was so decided with reference to a provision of the tariff Acts in Morrill v. Jones, 106 U.S. 466, 1 S.Ct. 423, 27 L.Ed. 267, and Merritt v. Welsh, 104 U.S. 694, 26 L.Ed. 896. The facts that the regulation had stood for some time, that the statute had been reenacted, and that former decisions had to be overturned were held not to excuse the court from applying another provision of the Estate Tax law correctly, and from overruling the previous incorrect decisions. Helvering v. Hallock, 309 U.S. 106, 60 S.Ct. 444, 84 L.Ed. 604, 125 A.L.R. 1368. A regulation inconsistent with the statute never binds a court, though the Commissioner may feel bound not to attack it. The qualifying words of this *744regulation evidently reflect an implication from the reasoning of the court in Chase Nat. Bank v. United States, 1928, 278 U.S. 327, 49 S.Ct. 126, 73 L.Ed. 405, 63 A.L.R. 388, where it was discussed whether the estate tax on insurance taken out by the decedent on his own life was an unconstitutional direct tax, and held that it was not, but was an excise tax on the transfer of property, and valid in that case because the insured had the power to change the beneficiary. The implication drawn was a natural one, but not a decision that the tax would be invalid if no power to change the beneficiary or other similar power was retained. The Supreme Court has never held that. The plain legal truth is that the gift and estate taxes are all excise taxes on transfers of property and valid as such. The two taxes are interrelated, so that a transfer supposed at the time to be a gift and paying a tax as such, if it afterwards turns out for a good legal reason to be properly a transfer in contemplation of death or taking full effect at or because of death and so classified by the statutes as subject to the higher estate tax, the error is corrected and adjustment made by crediting what was previously paid as a gift tax. Int.Rev.Code, § 936, 26 U.S.C.A. Int.Rev.Code, § 936. This may be done since both taxes are excise taxes on a transfer of property. What transfers are to be put in each category is for Congress to say. There is nothing in the Constitution to prevent Congress from dealing with insurance by a decedent on his own life as a thing apart, as I think Sect. 811(g) does. One does not need to have “indicia of ownership” at his death in order to have transferred property includable in his estate. He has to own the interests mentioned in § 811(a). But under § 811(c) if a transfer, no matter how completely it divests his ownership, was “in contemplation of or intended to take effect in possession or enjoyment at or after his death”, the value is includable for the estate tax. This is so because the statute says so. Now this decedent transferred about $150,000 in money to insurance companies for a larger benefit to his wife and children (under the Florida statute) to accrue to them in possession at his death. He then confirmed it by assignments which cut off all his powers. The assignments were a present gift of valuable rights such as the right to surrender the policies for cash, and were properly taxable as gifts on that idea; but if surrendered there would cease to be insurance and that would end the matter. They were not surrendered, and the insurance continued till the death of insured, so that what was then received was the proceeds of insurance, squarely within the words of the statute.
This statutory treatment of such insurance is logical and consistent with the words quoted from 811(c). Such insurance is an indirect transfer (whether assigned or not) of wealth from the estate to voluntary beneficiaries, and in its very nature in contemplation of death and to take full effect at death. Section 811(c) and Section 811(g) stand or fall together. If the one is unconstitutional as against a full divestiture of ownership, so is the other. In truth Congress could constitutionally exempt all such insurance, instead of only $40,000. It could also, as it did, include it in the estate without conditions.
In Bailey v. United States, 1939, 27 F.Supp. 617, 89 Ct.Cl. § 364, Court of Claims had policies made payable to decedent’s wife under an agreement treated as an absolute assignment. It was stipulated that there was no special contemplation of death. The unanimous court said: “Life insurance -is inherently testamentary in character. The payment of premiums and the insured’s death are the necessary events giving rise to the full and complete possession and enjoyment of the face amount of the policies by the beneficiary. The acquisition of life-insurance policies on one’s own life is a substitute for a testamentary disposition of property, and to allow an insured to avoid the estate tax upon his estate by making an assignment of policies taken out by him, and upon which he paid the premiums at a time when the statute required the inclusion of the proceeds of such policies in his gross estate, would be contrary to the clear language of the statute.” 27 F.Supp. at page 621. This perfectly states the case.
*745But if the fact of special intent is to be tried at all, the conclusion of the Tax Court is amply sustainable. The two first policies are apparently the ordinary type of family insurance. The last four, constituting the great bulk of the insurance, were obtained in a single month, with a cash outlay of about $150,000. There was more of an investment than an insurance purpose. The trust created to receive the assignments of the policies had the same trustees as were named executors in the will executed four years later, and the trusts of the insurance and in the will touching other property had the same beneficiaries and similar powers. The will had a clause revoking former wills. The Tax Court remarks that a wealthy and experienced business man would hardly wait till he was sixty-eight years old to make his first will. It inferred that another similar will had probably been executed about the time of creating the insurance trust, or that in any event the trust was a part of a testamentary plan, and thus made in contemplation of death. This fact conclusion I think is warranted.
Rehearing denied; SIBLEY, Circuit Judge, dissenting.