Estate of Thompson v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 23 April 1940 |
| Docket Number | Docket No. 96358. |
| Citation | 41 BTA 901 |
| Parties | ESTATE OF WILLIAM G. THOMPSON, MARY H. THOMPSON, EXECUTRIX U/W WILLIAM G. THOMPSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
George E. Mears, Esq., for the petitioner.
T. G. Histon, Esq., for the respondent.
The Commissioner determined a deficiency of $1,243.82 in estate tax. The question for decision is whether the Commissioner erred when he included in the gross estate, under section 302 (g) of the Revenue Act of 1926, the cash surrender value of 17 policies of insurance upon the life of the deceased. The facts have been stipulated and are found in accordance with the stipulation of the parties.
FINDINGS OF FACT.
The decedent was born on November 16, 1864, and died on September 12, 1935. He was survived by his wife, Mary H. Thompson.
The following 17 policies of life insurance, which he took out on his own life, are involved in this proceeding:
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| Date issued | Date of maturity | Amount
------------------------------------------------------------|--------------|------------------|-------
1. New England Mutual Life Insurance Co., Massachusetts___ | Dec. 31,1895 | Dec. 31,1939 | $2,000
2. New England Mutual Life Insurance Co., Massachusetts___ | May 11,1897 | May 15,1940 | 2,000
3. New England Mutual Life Insurance Co., Massachusetts___ | Dec. 11,1897 | Dec. 15,1939 | 1,000
4. New England Mutual Life Insurance Co., Massachusetts___ | Jan. 10,1898 | Jan. 15,1940 | 1,000
5. New England Mutual Life Insurance Co., Massachusetts___ | Apr. 21,1898 | Apr. 15,1942 | 1,000
6. New England Mutual Life Insurance Co., Massachusetts___ | Oct. 24,1898 | Oct. 15,1939 | 2,000
7. Mutual Benefit Life Insurance Co., New Jersey__________ | Dec. 12,1898 | Dec. 12,1938 | 15,000
8. Mutual Benefit Life Insurance Co., New Jersey__________ | Oct. 14,1903 | Oct. 14,1938 | 4,000
9. Penn Mutual Life Insurance Co., Pennsylvania___________ | Oct. 20,1903 | Oct. 20,1938 | 2,000
10. Provident Mutual Life Ins. Co. of Philadelphia_________ | Oct. 22,1903 | Oct. 22,1938 | 1,000
11. Mutual Benefit Life Insurance Co., New Jersey__________ | Oct. 23,1903 | Oct. 23,1938 | 2,500
12. Mutual Benefit Life Insurance Co., New Jersey__________ | Apr. 30,1904 | Apr. 30,1939 | 6,000
13. Connecticut Mutual Life Insurance Co., Connecticut_____ | Nov. 14,1905 | Nov. 14,1939 | 2,000
14. Northwestern Mutual Life Insurance Co., Wisconsin______ | Feb. 12,1910 | Feb. 12,1940 | 2,000
15. Northwestern Mutual Life Insurance Co., Wisconsin______ | Feb. 14,1911 | Feb. 14,1941 | 1,000
16. Mutual Life Insurance Co. of New York, New York________ | Mar. 20,1911 | Mar. 20,1941 | 2,500
17. Northwestern Mutual Life Insurance Co., Wisconsin______ | Mar. 20,1911 | Mar. 20,1941 | 2,500
| | |_______
Total_______________________________________________ | ____________ | ____________ | 49,500
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Copies of the policies are included in these findings by this reference.
Each policy required the insured to make a stated number of equal annual payments. Each policy contained a provision that the amount of the policy was payable to the insured when all of the annual payments had been made, but if he should die before that date survived by his wife, then the amount was to be paid to her at his death, otherwise to his executors or administrators.
The policy taken out by the decedent on May 11, 1897, when he was 32 years of age, was described as a "43-year endowment policy." The following provisions taken from that policy are typical of similar provisions contained in the other policies:
In Consideration of the application upon which this Policy is issued, which is hereby made a part hereof, and of the annual payment in advance of fifty-two dollars, and twenty cents, to be made to it, at its office in Boston, or to its duly authorized agent, by William Goodrich Thompson of Cambridge in the State of Massachusetts the insured under this policy, on or before the fifteenth day of May in every year, until forty-three annual premiums shall have been paid, the NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY promises and agrees to pay, at its office in Boston, the sum of two thousand dollars, in lawful money of the United States, to William Goodrich Thompson on the fifteenth day of May 1940, or if the said insured shall decease before that date, then to his wife Mary Huntington Thompson if she shall survive him, otherwise to his executors or administrators, upon receipt of satisfactory proof of the death of the insured, after deducting therefrom all indebtedness of the insured to the Company, together with the residue, if any, of the year's premium.
* * * * * * *
Under the provisions of the Public Statutes of Massachusetts, the holder of this policy will be entitled to a cash surrender value, or to paid-up insurance for the amounts as stated below:
There follows a table showing the cash surrender value and the participating paid-up insurance at the end of each year.
No mention is made in the above policy of any right to change the beneficiary or to borrow on the policy.
Seven of the policies contain a statement that the insured has retained no power to change the beneficiary. The proceeds of those seven policies were included in the gross estate at $20,841.46. Other policies contain a provision that the insured can make no change as to a beneficiary unless he has expressly reserved the right. None of the policies contain any express reservation by the insured of a right to change a beneficiary, to surrender the policy for cash, or to borrow on the policy, without the consent of the beneficiary.
Only five changes were ever made in the policies from the date of their issuance to the date of the death of the decedent. These changes were as follows:
1 and 2. — Two of the policies, No. 1 and No. 6, originally were payable to the estate of the insured in the event that he should not live until the maturity date. He changed those policies, one on December 30, 1896, and the other on December 4, 1899, to provide that the benefits should be paid to his wife, Mary Huntington Thompson, in case the policy became payable by reason of his death and she was alive at that time.
3.—Policy No. 5 was payable to Catherine M. Thompson, sister of the insured, in case he died before the policy matured and she survived him. He named his wife as a second beneficiary, on June 22, 1931, so that if the policy should become payable by reason of his death and his sister predeceased him but his wife survived, then the policy was payable to his wife.
4.—Policy No. 7 was originally payable to the sister of the insured. The sister on December 20, 1902, gave her consent and the beneficiary was changed at that time to the decedent's wife so that the proceeds were payable to her in case the policy became payable by reason of the death of the insured and his wife survived him.
5.—The wife of the insured was originally named as beneficiary in policy No. 13. She surrendered her rights under the policy to her husband on December 9, 1929, and on January 9, 1930, he made the policy again payable to his wife if it became payable by reason of his death and she survived him, and he further provided that otherwise it would be payable to his children.
The sister died in 1934.
The Commissioner, in determining the deficiencies, valued the policies at the date of death at $50,644.33 and included the excess of that value over $40,000, or $10,644.33, in the gross estate under section 302 (g).
The only explanation for the action of the Commissioner is the following found in a letter preliminary to the deficiency notice:
It appears that although the "death beneficiary" in said policies was irrevocably named, the beneficiary, nevertheless, was to receive the proceeds only if she survived the insured in case of his death during the endowment period; otherwise, the proceeds would be payable to the insured at the end of the endowment period. It would also appear that the policies had a surrender value. Since it would appear that the decedent had an interest in the endowment policies at the date of death, this office adheres to its previous determination as to said policies. In this connection see the decision of the Board of Tax Appeals in the case of Philip W. Blood, 22 B. T. A. 1000.
Section 302 (g) of the Revenue Act of 1926 provides that the value of the gross estate of a decedent shall be determined by including the excess over $40,000 of the amount receivable by all beneficiaries other than the decedent's estate as insurance under policies taken out by the decedent upon his own life. The policies here in question were all taken out by the decedent upon his own life, and the amount receivable by his wife in excess of $40,000 has been included in the gross estate of the decedent under section 302 (g). The proceeds of the policies come within the words of the statute.
The Supreme Court has held, however, that this provision does not apply to the proceeds of policies taken out prior to its passage, where the right to exercise control over the disposition of the proceeds of the policies, as by changing the beneficiaries, borrowing on the policies, or surrendering them for cash, was not retained by the decedent for himself alone, that is, without the necessity of obtaining the consent of the beneficiary. Lewellyn v. Frick, 268 U. S. 238; Bingham v. United States, 296 U. S. 211; Industrial Trust Co. v. United States, 296 U. S. 220. The Court pointed out that...
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