Commissioner of Internal Revenue v. Le Gierse, 232.
| Decision Date | 25 March 1940 |
| Docket Number | No. 232.,232. |
| Citation | 110 F.2d 734 |
| Parties | COMMISSIONER OF INTERNAL REVENUE v. LE GIERSE et al. |
| Court | U.S. Court of Appeals — Second Circuit |
Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key and Maurice J. Mahoney, Sp. Assts. to Atty. Gen., for petitioner.
Frederick O. McKenzie, of New York City, for respondents.
Before SWAN, AUGUSTUS N. HAND, and PATTERSON, Circuit Judges.
At the date of her death on January 1, 1936, Mrs. Le Gierse had a policy of insurance upon her life for $25,000 payable to her daughter. Because of the circumstances under which the policy was taken out, the commissioner ruled that the sum receivable by the beneficiary named in the policy was not "insurance" within the meaning of section 302(g) of the Revenue Act of 1926, as amended,1 but represented a transfer to take effect in possession or enjoyment at or after death, and as such must be included in the decedent's gross estate under section 302(c), as amended. Accordingly he assessed a deficiency. This the Board set aside, following its prior decision in Estate of Anna M. Keller v. Comm. of Int. Rev., 39 B.T.A. 1047. For a discussion of the Keller decision see 49 Yale L.J. 946. The correctness of the Board's action is the question presented to the court.
The facts as found by the Board are briefly as follows: On December 6, 1935 Mrs. Le Gierse, who was then 80 years old but in good health and not in contemplation of death, took out a single premium life insurance policy for $25,000 upon her own life, naming her daughter as the beneficiary. The policy was in the standard form. The single premium paid for the policy was $22,946. On the same date Mrs. Le Gierse purchased from the same insurance company a single premium life annuity in the standard form for annuity contracts. It cost her $4,179 and entitled her to receive $49.15 monthly during her life. In form the two policies were separable and independent, but the insurance company would not have issued the life policy, in view of the insured's advanced age, without the purchase by her of the annuity; although it would have sold her the annuity without requiring her to purchase the life policy. In computing the single premium charged for each policy no adjustment was made on account of the premium to be received on the other. At the time the policies were issued Mrs. Le Gierse had an expectancy of about four or five years under the American experience tables. However, she was stricken with cerebral apoplexy on December 24, 1935, and this resulted in her death on January 1, 1936.
The commissioner argues that the decedent's dealings with the insurance company must be viewed as a single transaction, and so viewed the transaction was in substance a payment by Mrs. Le Gierse of $27,125 as consideration for the insurance company's promise to pay her $49.15 monthly during her life and on her death to pay $25,000 to her daughter. Therefore, it is said, the company received more than it would ever have to pay out, the element of risk essential to an insurance policy was eliminated, and the life policy was not "genuine" insurance such as section 302(g) exempts from inclusion in the gross estate. We agree that the entire transaction is to be considered. Although generally arrangements entered into at the same time are to be taken as one agreement, that is not the case where the parties intend that they be deemed independent contracts....
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