Estate of Pyle v. Comm'r of Internal Revenue

• Decision Date: 14 September 1961
• Docket Number: Docket No. 79523.
• Citation: 36 T.C. 1017
• Parties: ESTATE OF IDA JARVIS PYLE, ROBERT M. PYLE, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

36 T.C. 1017

ESTATE OF IDA JARVIS PYLE, ROBERT M. PYLE, EXECUTOR, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 79523.

Tax Court of the United States.

Filed September 14, 1961.

Arthur L. Nims III, Esq., for the petitioner.

Sheldon Seevak, Esq., for the respondent.

Decedent, as beneficiary and sole owner of an insurance policy on the life of her husband, executed a settlement option prior to the death of her husband whereby interest on the proceeds of the policy was to be paid to her for life and upon her death her children were to be paid the interest until they reached the age of 50, at which time they could elect to receive the proceeds in installments. Decedent, until the death of her husband, had the right to revoke or amend the settlement option. Held, the proceeds are includible in decedent's gross estate as a transfer of property under section 2036 of the Internal Revenue Code of 1954.

OPINION.

FAY, Judge:

The Commissioner has determined a deficiency of $19,504.46 in estate tax.

The only issue to be decided is whether the proceeds of a life insurance policy owned by the decedent, Ida Jarvis Pyle (hereinafter referred to as Ida), on the life of her husband, Wallace Pyle (hereinafter referred to as Wallace), which proceeds on the death of Wallace were left with the insurance company under a settlement option executed by Ida prior to Wallace's death, are includible in the gross estate of Ida.

All the facts have been stipulated, are so found, incorporated herein by reference. Those necessary to an understanding of our inquiry are recited below.

Ida died testate on June 3, 1956. She was the widow of Wallace and was domiciled in the State of New Jersey as of the date of her death. Robert M. Pyle is the duly qualified executor of Ida's estate. The estate tax return of Ida was filed with the district director of internal revenue at Newark, New Jersey.

In 1935 Ida made application to the Prudential Insurance Company of America (hereinafter referred to as the company), for an insurance policy in the amount of $30,000 on the life of Wallace. Policy No. 8885292 (hereinafter referred to as the policy) was issued by the company on April 27, 1935, and was made payable upon the death of Wallace—

To IDA J. PYLE, BENEFICIARY, WIFE OF THE INSURED, IF LIVING OTHERWISE IN EQUAL SHARES TO SUCH OF ROBERT M. PYLE, HELEN J. PYLE AND BARBARA PYLE, SON AND DAUGHTERS, RESPECTIVELY, OF THE INSURED, AS MAY BE LIVING, IF ANY, BENEFICIARIES, OTHERWISE TO THE EXECUTORS OR ADMINISTRATORS OF THE LAST SURVIVOR OF SAID BENEFICIARIES.

If there be no Beneficiary living at the death of the Insured the proceeds of this Policy shall be payable to the executors, administrators or assigns of the Insured, unless otherwise provided in the Policy. The right to change the Beneficiary has — been reserved.

Attached to and made a part of this policy was a rider dated April 27, 1935, which provided that:

All rights, benefits and advantages specifically given to the Insured by the terms of this Policy or which except for the provisions of this Rider, and except for nonage, if the Insured be a minor, might be exercised by the Insured, shall belong to and may be exercised by IDA J. PYLE, WIFE OF THE INSURED, HER EXECUTORS, ADMINISTRATORS OR ASSIGNS, instead of the insured. * * *

The parties agree that as of the date of issuance of the policy Ida alone possessed the incidents of ownership therein, including the right to assign the policy, the right to borrow from the Company on the security of the policy, the right to surrender the policy for its net cash value and the right to change both the mode of settlement of the policy and/or the beneficiaries.

At the request of Ida, a rider dated May 23, 1935, was attached to and made a party of the policy. The rider provided as follows:

If this Policy matures by death, the proceeds shall be payable as herein provided.

1. If Ida J. Pyle, Beneficiary, wife of the Insured, survives the Insured, the proceeds shall be held by the Company in accordance with Option 3 as governed by the Provisions as to Modes of Settlement contained in this Policy, without the right of withdrawal.

2. At the death of the survivor of the Insured and his said wife, the proceeds shall be payable as provided in Paragraph 3 in equal shares to such of Robert M. Pyle, Helen J. Pyle and Barbara Pyle, Beneficiaries, children of the Insured, as may be living, if any, otherwise in one sum to the executors, administrators or assigns of the survivor of the Insured and his said wife.

3. Any amount becoming payable to any of said children as provided in Paragraph 2 shall be held by the Company in accordance with said Option 3 as governed by said Provisions as to Modes of Settlement, without the right of withdrawal. Such Beneficiary may, after he or she has attained fifty years of age, elect that such amount be paid to such Beneficiary in monthly installments in accordance with Option 2 as governed by said Provisions as to Modes of Settlement, with payments certain for twenty years.

4. If any of said children dies while any amount payable to such Beneficiary remains under said Option 3 or while any installments certain payable to such Beneficiary remain unpaid, such amount, or the commuted value of such unpaid installments certain, as the case may be, shall be paid in one sum in equal shares to such of said children as may be living, if any, otherwise to the executors, administrators or assigns of the survivor of said children.

5. Interest at the effective rate of 3% per annum on any amount held under said Option 3 shall be paid monthly if each payment amounts to at least $10, otherwise the Company reserves the right to make payment in such manner, quarterly or semiannually, as will provide payments of the least excess over $10. Each payment of interest and of any dividend shall be made on its due date to said wife, if living on such due date, otherwise to the Beneficiary to whom such amount became payable if then living.

Under Option 3 the proceeds of the policy were...