Chase Nat. Bank v. United States
| Citation | 116 F.2d 625 |
| Decision Date | 23 December 1940 |
| Docket Number | No. 94.,94. |
| Parties | CHASE NAT. BANK OF CITY OF NEW YORK v. UNITED STATES. |
| Court | U.S. Court of Appeals — Second Circuit |
Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, Norman D. Keller, and Edward First, Sp. Assts. to the Atty. Gen., for defendant-appellant.
Ewing Everett, of New York City (Malcolm Johnson, of New York City, O. H. Chmillon, of Washington, D. C., and Miller & Chevalier, of New York City, of counsel), for petitioner-appellee.
Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
The question before us on this appeal is whether the proceeds of an insurance policy upon the life of Forrest E. Dryden were properly included in his gross estate upon assessment of estate taxes thereon under Section 302(g) of the Revenue Act, 26 U.S.C.A. Int.Rev.Acts, pages 227, 231, which was operative at the time of Dryden's death on July 19, 1932.
The provisions for consideration are as follows:
* * * * *
"(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. * * *"
The decedent Dryden had a twenty-year endowment insurance policy which matured in 1920. In settlement of this policy, and under one of the options it contained, Dryden in December, 1920, accepted a participating paid-up policy in which he named his wife as beneficiary. The policy provided for the payment of $50,000 to his wife "if the Beneficiary survive the Insured, otherwise to the executors, administrators or assigns of the Insured, immediately upon receipt of due proof of the death of the Insured."
No power was expressly retained to revoke the policy or change the beneficiary with respect to the face amount of the policy. The insured had the option to receive any dividends in cash or to apply such dividends to the purchase of paid-up additions to the policy. Between the years 1922 and 1931 the insured, in the exercise of his option, applied dividends payable under the policy to the purchase of paid-up additional insurance in the amount of $6,517 for the same beneficiary. Upon his death on July 19, 1932, his widow received $50,000 representing the face amount of the policy, $6,517 representing the additional insurance, and a mortuary dividend of $373.48. The Commissioner of Internal Revenue included all three sums aggregating $56,890.48 in the gross estate of the decedent subject to estate tax. No question is made that $373.48 was properly included in the gross estate. The statutory exemption of $40,000 was taken with respect to other life insurance policies. The inclusion of the two items of $50,000 and $6,517 in the gross estate is the only matter in question. The executor of Dryden paid a tax based on the inclusion of all three items and brought this suit for recovery of the further tax arising thereby. The District Court held that the Commissioner had erred in including the items of $50,000 and $6,517 in the gross estate and directed judgment for recovery of the additional tax based thereon in favor of the executor.
Whatever may have been the situation before the decision in Helvering v. Hallock, 309 U.S. 106, 60 S.Ct. 444, 84 L.Ed. 604, 125 A.L.R. 1368, we think that the possibility of reverter which was in the insured and would have resulted in payment of $50,000 and $6,517 to his estate, had his wife died before him, was terminated by his death, and this determination of his interest was an event which rendered the interest includable in his gross estate.
In Bingham v. United States, 296 U.S. 211, 56 S.Ct. 180, 80 L.Ed. 160, Section 402(f) of the Revenue Act of 1918, 40 Stat. 1097, 1098, was considered. That section was similar to Section 302(g) of the Act of 1926 now before us. A majority of the Supreme Court held that the statute was not to be construed as applicable to an insurance policy made payable to a beneficiary directly or by assignment where no power was reserved in the insured to change the beneficiary, pledge or assign the policy or assignment, without the beneficiary's consent, even though by the terms of the policy or assignment, if such beneficiary had not survived the decedent, the proceeds would have gone to the insured's estate. Justice Sutherland's opinion relied on Helvering v. St. Louis Union Trust Co., 296 U.S. 39, 56 S.Ct. 74, 80 L.Ed. 29, 100 A. L.R. 1239, and Becker v. St. Louis Union Trust Co., 296 U.S. 48, 56 S.Ct. 78, 80 L.Ed. 35, where the corpus of trusts created by a settlor inter vivos was held not to be taxable as a transfer "intended to take effect in possession or enjoyment at or after his death." In each case there was a reversionary interest reserved to the settlor in case the beneficiary died before him. But the decisions in Helvering v. St. Louis Union Trust Co. and Becker v. St. Louis Union Trust Co. were overruled in Helvering v. Hallock, 309 U.S. 106, 60 S.Ct. 444, 84 L.Ed. 604, 125 A.L.R. 1368, and Bingham v. United States must fall with them. In Helvering v. Hallock the court was not dealing with an insurance policy but with trusts in which the settlor retained a reversionary interest which terminated with his death like that in the St. Louis Trust decisions. But we can see no essential difference and accordingly regard the proceeds of the policies involved in the case at bar as coming to the beneficiary through the death of the insured. Such a succession falls directly within the terms of Section 302(g). The theory of taxation closely resembles that applied to joint tenancies. There, upon the death of one of the joint tenants, the entire res must be included in his gross estate so far as it was derived from his property. Tyler v. United States, 281 U.S. 497, 50 S.Ct. 356, 74 L.Ed. 991, 69 A.L.R. 758.
In Bailey v. United States, 31 F.Supp. 778, the Court of Claims held that the...
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