MAY BILLINGS AND CITY BANK FARMERS TRUST COMPANY v. Commissioner of Internal Revenue, Docket No. 81638.

• Citation: 35 BTA 1147
• Decision Date: 27 May 1937
• Docket Number: Docket No. 81638.
• Parties: MAY BILLINGS AND CITY BANK FARMERS TRUST COMPANY, AS EXECUTORS OF THE LAST WILL AND TESTAMENT OF RICHARD BILLINGS, DECEASED, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

35 B.T.A. 1147 (1937)

MAY BILLINGS AND CITY BANK FARMERS TRUST COMPANY, AS EXECUTORS OF THE LAST WILL AND TESTAMENT OF RICHARD BILLINGS, DECEASED, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 81638.

Board of Tax Appeals.

Promulgated May 27, 1937.

Russell L. Bradford, Esq., and James D. Ouchterloney, Esq., for the petitioners.

Lewis S. Pendleton, Esq., for the respondent.

This proceeding is for the redetermination of a deficiency in estate tax in the amount of $68,206.37. The petitioners allege that the respondent erred in the determination of the deficiency (1) by including in the gross estate for purposes of Federal estate tax the proceeds of policies of insurance which were taken out by the decedent prior to the effective date of the Revenue Act of 1918; (2) in determining that the proceeds of insurance policies taken out by the decedent during his life, under the terms of which the decedent did not reserve the right to change the beneficiary, and under the terms of which the decedent retained no legal incidents of ownership, should be included in the gross estate; (3) in determining that the insurance policies taken out by the decedent during his lifetime and thereafter irrevocably assigned to named beneficiaries should be included in the gross estate for purposes of Federal estate tax; (4) in determining that the policies irrevocably assigned as aforesaid were assigned in contemplation of death; and (5) in not allowing proper credit against the Federal estate tax as determined by him as aforesaid for state inheritance and estate taxes.

FINDINGS OF FACT.

The decedent, Richard Billings, died a resident of Woodstock, Vermont, on December 3, 1931, and the petitioners are the duly appointed and qualified executors of his estate. The petitioners filed a Federal estate tax return for the decedent's estate in the office of the collector of internal revenue at Burlington, Vermont.

There were 32 insurance policies upon the life of the decedent, the proceeds of all of which were payable to May Billings, the decedent's wife at the date of death. The proceeds of such policies in the amount of $538,462.43 were paid to and received by May Billings. In each of these policies the decedent had the right up to the date of death to change the beneficiary. The respondent has included in the gross estate the proceeds of these policies in excess of $40,000.

In addition to the aforesaid policies of insurance there were the following policies upon the life of the decedent, all of which were noted in the estate tax return filed:

                -----------------------------------------------------------------------------------------------------------
                Item number in schedule C     |      Description of policy                                     | Amount of
                 of Federal estate tax return |                                                                | proceeds
                ------------------------------|----------------------------------------------------------------|-----------
                63 __________________________ | Bankers Life Co., policy No. 406418, issued May 26, 1917 _____ | $10,911.00
                64 __________________________ | Fidelity Mutual Life Insurance Co., policy No. 266404, issued  |  23,318.01
                                              |   May 17, 1916.                                                |
                66 __________________________ | Provident Life & Trust Co. of Philadelphia, policy No.         |  12,553.89
                                              |  231997, issued March 3, 1915.                                 |
                -----------------------------------------------------------------------------------------------------------
                

In the above policies the wife of the decedent, May Billings, was named beneficiary and the decedent reserved no right to change the beneficiary. May Billings survived the decedent and received the proceeds of these policies following her husband's death. In Bankers Life Co. policy No. 406418 (item 63) the decedent had the right during his lifetime without the consent of the beneficiary (1) to require payment of the proceeds in 20 equal annual payments, together with a further payment of one-half of said proceeds, or (2) to leave the proceeds on deposit with the company at 3½ percent interest, the principal amount to be paid at the death of the beneficiary to the latter's executors or administrators, or (3) to require payment of the proceeds in fixed monthly payments for 10, 15, 20, or 25 years, and thereafter for life based upon the life expectancy of the beneficiary.

In Fidelity Mutual Life Insurance Co. policy No. 266404 (item 64) the decedent had the right during his lifetime without the consent of the beneficiary (1) to leave the proceeds on deposit with the company at not less than 3 percent interest per annum, the principal amount to be paid upon the death of the beneficiary to the latter's executors or administrators; or (2) to direct payment of the proceeds in equal installments of from 2 to 25 years; or (3) to direct payment of the proceeds in fixed annual installments based upon the life expectancy of the beneficiary.

In Provident Life & Trust Co. of Philadelphia policy No. 231997 (item 66) the decedent had the right without consent of the beneficiary to require the proceeds of the policy to be paid (1) in yearly installments guaranteed for from 2 to 30 years, or (2) in yearly installments guaranteed for 10, 15, 20, or 25 years, and with yearly income thereafter during the lifetime of the payee based upon his or her life expectancy, and to direct that the person entitled to receive any such installments should have no right to commute the same for cash.

In the determination of the deficiency the respondent has included the proceeds of these policies in the gross estate.

In addition to the above mentioned policies there were three policies upon the life of the decedent as follows:

                Description of policy Proceeds
                Missouri State Life Insurance Co., policy No. IN239504, assigned to
                  Aline J. Boyce __________________________________________________  $10,896.20
                Missouri State Life Insurance Co., policy No. IN239505, assigned to
                  Laura M. Pelton _________________________________________________   10,896.20
                Missouri State Life Insurance Co., policy No. IN239506, assigned to
                  Mrs. Perry Warren _______________________________________________   10,896.20
                

The above insurance was originally taken out on January 1, 1921, as one policy payable to the decedent's estate, but in June 1931 it was divided into three policies which were irrevocably assigned on June 24, 1931, to the respective persons named above. The respondent has included the proceeds of these policies in the gross estate upon the ground that the assignments constituted transfers of property made in contemplation of death. They were so made.

The cause of the decedent's death is shown by the death certificate as chronic cardiac valvular disease — duration six years, with acute myocardial failure — duration one year, one month, and two days — as the contributing cause. The decedent executed his last will and testament on July 2, 1931.

On December 28, 1932, and November 9, 1933, the petitioners paid the State of Vermont estate and inheritance taxes aggregating $63,064.29.

Federal estate tax in the amount of $16,296.78 was paid on December 3, 1932. The petition to the Board of Tax Appeals was filed September 20, 1935.

OPINION.

SMITH:

The first question presented by this proceeding is whether the proceeds of 32 life insurance policies which were paid to May Billings, the beneficiary, in the amount of $538,462.43 formed a part of the gross estate of the decedent. The decedent had the right to change the beneficiary of these policies up to the date of death. Petitioners have made no argument, either orally or written, in support of their contention upon this point. This Board and the courts have long held that, regardless of the date on which the policies were taken out, the proceeds of insurance on a decedent's life are properly includable in his gross estate where he has retained until his death the power to change the beneficiaries. Chase National Bank v. United States, 278 U. S. 327; Reinecke v. Northern Trust Co., 278 U. S. 339; Heiner v. Grandin, 44 Fed. (2d) 141; certiorari denied, 286 U. S. 561; H. T. Cook et al., Executors, 23 B. T. A. 335; affd., 66 Fed. (2d) 995; Jacob K. Newman et al., Executors, 29 B. T. A. 53; and Louise C. Moore, Executrix, 33 B. T. A. 108. The proceeds of these 32 policies constituted a part of the gross estate of the decedent.

With regard to the policies referred to as items 63, 64, and 66 of the estate tax return, the petitioners contend that, inasmuch as these policies were taken out before the effective date of the Revenue Act of 1918 (February 24, 1919) and were made payable to an irrevocably named beneficiary, they may not be included in the gross estate. The petitioners cite Bingham v. United States, 296 U. S. 211, and Industrial Trust Co. v. United States, 296 U. S. 220, in support of this contention. The cited cases stand for the proposition that where insurance policies were taken out prior to the effective date of the Revenue Act of 1918 and prior to such date the decedent had no interest in the policies such as the right to change the beneficiary, or to borrow money on the policies, or to surrender them without the consent of the beneficiary, the proceeds of the policies are not subject to Federal estate tax.

In Industrial Trust Co. v. United States, supra, the facts were that the decedent died in 1930. He had taken out a policy in 1892, the proceeds of which were payable to the wife of the decedent as sole beneficiary if living, and, if not living, to the surviving children of the decedent. In 1912 the policy became a paid-up policy, requiring no further payment of premiums. No power was reserved to change beneficiaries, borrow on the policy, or surrender it. The Court stated:

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