Decedent purchased from an insurance company two single premium
contracts. The first contract insured the decedent's life and
provided for payment of the proceeds to his wife or, if she
predeceased him, to their daughters, and if the decedent survived
all beneficiaries, the proceeds were to be paid to his executors or
administrators. The second contract, which the decedent was
required to purchase in lieu of a physical examination, provided
for semi-annual payments to the decedent during his lifetime and
for payment of a specified amount to his wife upon his death, or,
if she predeceased him, to the daughters, and if they were not then
living, to his estate. Each contract provided that the wife, during
her lifetime, should have the right to assign it, to borrow money
on it, to receive dividends, to change the beneficiaries, and to
surrender the contract and obtain its cash surrender value. If the
wife predeceased the decedent, those powers were to pass to him.
Decedent was 63 years of age when the contracts were purchased, and
died nearly five years later, survived by his wife and daughters.
His wife had not surrendered, assigned or alienated either contract
prior to his death.
1. The contracts, which must be considered together, involved no
true insurance risk; therefore, § 302(g) of the Revenue Act of
1926, relating to amounts receivable "as insurance under policies
taken out by the decedent upon his own life," was inapplicable.
Helvering v. Le Gierse, 312 U. S. 531
325 U. S.
2. For purposes of the federal estate tax, the proceeds of the
contracts were includible in the gross estate of the decedent,
under § 302(c) of the Revenue Act of 1926, as an interest of which
the decedent had made an inter vivos
transfer "intended to
take effect in possession or enjoyment at or after his death." P.
325 U. S.
3. The decedent's death was the decisive fact that terminated
all of his potential rights and insured the complete ripening of
the wife's interests. The transfer of the proceeds of the contracts
having been effectuated finally and definitely at the decedent's
death, § 302(c) requires that those proceeds be included within the
decedent's gross estate. P. 325 U. S.
Page 325 U. S. 688
4. The essential element here is the decedent's possession of a
reversionary interest at the time of his death, which postponed
until then the determination of the ultimate possession or
enjoyment of the property. The existence of such an interest
constitutes an important incident of ownership sufficient, in
itself, to support the imposition of the estate tax. Helvering
v. Hallock, 309 U. S. 106
325 U. S.
5. Imposition and computation of the federal estate tax are
based upon interests in actual existence at the time of the
decedent's death. Events which would have extinguished the
decedent's reversionary interest had they occurred, but which did
not occur, must be ignored. P. 325 U. S.
144 F.2d 373, affirmed.
Certiorari, 324 U.S. 833, to review the affirmance of a
judgment, 52 F. Supp. 704, dismissing the complaint in a suit for a
refund of federal estate taxes.
MR. JUSTICE MURPHY delivered the opinion of the Court.
The question here is whether the proceeds of certain contracts
payable upon the death of the decedent to his wife are includible
in his gross estate for estate tax purposes under Section 302(c) of
the Revenue Act of 1926, as amended, Internal Revenue Code §
811(c). [Footnote 1
Page 325 U. S. 689
On June 29, 1933, the Equitable Life Assurance Society of the
United States issued two contracts for which the decedent paid sums
(1) The first contract, for which the decedent paid a single
premium of $14,357.08, insured the decedent's life for $18,928,
payable upon death to his wife or, if she predeceased him, to their
daughters. If all the beneficiaries predeceased the decedent, the
proceeds of the contract were to be paid to his executors or
administrators. In lieu of a physical examination in connection
with the issuance of this contract, decedent was required to
purchase a second or an annuity contract.
(2) Under the annuity contract, the decedent paid a single
premium of $12,142.92. The contract provided for semi-annual
payments of $386.51 to be made to the decedent during his lifetime
and for payment of $6,071.46 to his wife upon his death or, if she
predeceased him, to their daughters or, if they were dead, to his
By the terms of each contract, the wife had the unrestricted
right to assign it, to borrow money on it, to receive dividends, to
change the beneficiaries, and to surrender the contract and obtain
the surrender value thereof. The contracts designated her as the
"Owner" or "Purchaser," the decedent being called the "Insured" or
"Annuitant." In the event that the wife should predecease the
decedent, the contracts provided that all of the enumerated powers
were to vest in the decedent to the extent that such powers had not
otherwise been exercised by the wife.
The decedent was 63 years old when the contracts were issued. He
died nearly five years later, on February 23, 1938, survived by his
wife and daughters. His wife had not surrendered, assigned, or
alienated either contract prior to his death. The Equitable Life
Assurance Society thereupon paid the widow $6,071.46 under the
annuity contract, $18,928 under the life contract, and $182.24 as
accumulated dividends, making a total of $25,181.70.
Page 325 U. S. 690
On these facts, the Commissioner of Internal Revenue determined
that the Proceeds of the two contracts were includible in
decedent's estate for estate tax purposes. The petitioners, as
executors of the estate, were assessed a deficiency of $5,376.11.
After paying that amount, they filed a claim for refund. The claim
was rejected. They then brought this suit for refund. The District
Court sustained the action of the Commissioner and dismissed the
complaint. 52 F. Supp. 704. The Second Circuit Court of Appeals
affirmed this judgment. 144 F.2d 373. An apparent conflict of
authority among lower courts on the question presented led us to
grant certiorari. 324 U.S. 833. [Footnote 2
Helvering v. Le Gierse, 312 U.
, makes it plain that these two contracts, which
must be considered together, contain none of the true elements of
insurance risk. Section 302(g) of the Act, relating to amounts
receivable "as insurance under policies taken out by the decedent
upon his own life," is therefore inapplicable. The sole question,
then, is whether the proceeds of the contracts are includible in
the decedent's gross estate under Section 302(c) as the subject of
a transfer intended to take effect in possession or enjoyment at or
after the decedent's death. That question we answer in the
Section 302(c), as demonstrated by Helvering v.
Hallock, 309 U. S. 106
reaches all inter vivos
transfers which may be resorted
to, as a substitute for a will, in making
Page 325 U. S. 691
dispositions of property operative at death. It thus sweeps into
the gross estate all property the ultimate possession or enjoyment
of which is held in suspense until the moment of the decedent's
death or thereafter. Fidelity-Philadelphia Trust Co. v.
Rothensies, 324 U. S. 108
324 U. S. 111
In so doing, Section 302(c) pierces all the verbiage of "unwitty
diversities of the law of property." Helvering v. Hallock,
supra, 309 U. S. 118
Testamentary dispositions of an inter vivos
escape the force of this section by hiding behind legal niceties
contained in devices and forms created by conveyancers.
In this instance, the decedent carefully procured the issuance
of two contracts in his wife's name without possessing for a
measurable period most of the usual attributes of ownership over
the contracts. But this procedure does not conceal the fact that
decedent used these contracts as a means of effecting a transfer of
approximately $25,000 of his estate to the natural objects of his
bounty. Nor does it negative the fact that this inter
transfer possessed all the indicia of a testamentary
disposition. There was, in other words, a "transfer of property
procured through expenditures by the decedent with the purpose,
effected at his death, of having it pass to another." Chase
National Bank v. United States, 278 U.
, 278 U. S. 337
Section 302(c) must therefore be brought to bear.
The decedent, in making disposition of $25,000 of his property
through these two contracts, retained a valuable interest in that
amount which was not extinguished until he died. He retained not
only the right to semi-annual payments under the annuity contract,
but also a contingent reversionary interest in the entire proceeds
of both contracts. Had he survived his wife, he could have
exercised the attributes of ownership over the contracts, changing
the beneficiaries or surrendering the contracts as he saw fit. If
he had survived both his wife and his daughters,
Page 325 U. S. 692
the proceeds of the two contracts would automatically have been
payable to his estate when he died. Thus, the ultimate disposition
of the proceeds of the contracts was suspended until the moment of
decedent's death. Only then did the respective interests of the
wife and daughters become fixed; only then were their interests
freed from the contingency of the decedent's survival. His death
was the decisive fact that terminated all of his potential rights
and insured the complete ripening of the wife's interests. The
transfer of the proceeds of the contracts having been effectuated
finally and definitely at the decedent's death, as in the
case, Section 302(c) requires that those proceeds
be included within the decedent's gross estate.
This conclusion is unaltered by the fact that the wife had the
unrestricted power during the decedent's lifetime to exercise many
important incidents of ownership over the contracts, including the
power to terminate the decedent's reversionary interest in the
proceeds. Whatever the likelihood of the exercise of this power, it
is a fact that the wife did not change the beneficiaries or
surrender the contracts so as to destroy decedent's reversionary
interest. The string that the decedent retained over the proceeds
of the contracts until the moment of his death was no less real or
significant because of the wife's unused power to sever it at any
The essential element in this case, therefore, is the decedent's
possession of a reversionary interest at the time of his death,
delaying until then the determination of the ultimate possession or
enjoyment of the property. The existence of such an interest
constitutes an important incident of ownership sufficient by itself
to support the imposition of the estate tax. Helvering v.
The indefeasibility of that interest prior to
death or the decedent's possession of other powers of ownership is
unnecessary and indecisive of estate tax liability.
Page 325 U. S. 693
The disappearance of a decedent's reversionary interest,
together with the resulting estate tax liability, prior to death
through events beyond the decedent's control, is a possibility in
many situations such as the one in issue. [Footnote 3
] Likewise, a reversionary interest may
become vested prior to a decedent's death because of the occurrence
of other events beyond the realm of the decedent's volition and
unconnected in any way with his death. But the imposition and
computation of the estate tax are based upon the interests in
actual existence at the time of the decedent's death. It follows
that only those events that actually occurred prior to that moment
can be considered in determining the existence and value of the
taxable interests. Events that might have but failed to take place
so as to erase a decedent's reversionary interest must be ignored;
such unrealized possibilities, if significant at all, only add to
the remoteness of the reversionary interest.
In our view of the case, we need not consider the alternative
argument urged by the United States to the effect that the specific
amendments to Section 302(c) are also applicable since the decedent
actually received an annual return from the contracts for a period
which did not in fact end before his death. Nor do we reach any
questions of valuation of the decedent's reversionary interest such
as those which were decided in Fidelity-Philadelphia Trust Co.
Page 325 U. S. 694
and Commissioner v. Estate of
Field, 324 U. S. 113
"The value of the gross estate of the decedent shall be
determined by including the value at the time of his death of all
property, real or personal, tangible or intangible, wherever
situated, except real property situated outside of the United
"* * * *"
"(c) To the extent of any interest therein of which the decedent
has at any time made a transfer, by trust or otherwise, in
contemplation of or intended to take effect in possession or
enjoyment at or after his death. . . ."
The judgment below is stated by the United States to be
inconsistent with the result reached in Lloyd's Estate v.
141 F.2d 758, and to be in harmony with
Bailey v. United States,
31 F. Supp. 778. The United
States also claims that the result below is inconsistent with the
same court's prior affirmance of Estate of Ballard v.
47 B.T.A. 784, aff'd,
138 F.2d 512. In
view of the manner of our disposition of the instant case, however,
we have no occasion to determine whether these asserted conflicts
exist, or whether the decision here necessarily controls the
factual situations presented in these other cases.
Thus, in Fidelity-Philadelphia Trust Co. v. Rothensies,
324 U. S. 108
decedent's contingent power of appointment was exercisable only if
her two daughters died before her and left no surviving
descendants. If the daughters died first, but left surviving
descendants, it would be certain before the decedent's death that
her power of appointment would be nugatory. But such a contingency
did not happen. At the time when the decedent died, there was still
the possibility that her power of appointment might be effective.
The fact that the power of appointment might have been destroyed
prior to the decedent's death did not prevent the imposition of the
estate tax. The decedent's death was still the decisive factor
which enlarged and matured the interests of the daughters.
MR. JUSTICE ROBERTS, dissenting.
I think the judgment should be reversed.
The court's decision repudiates Helvering v. Hallock,
309 U. S. 106
other cases which have applied its reasoning. We have recently been
told that the question whether, within the intent of the Revenue
Acts, a transfer is "intended to take effect in possession or
enjoyment at or after" the grantor's death is to be decided not by
the terminology of conveyancing or the ancient real property law
respecting vested and contingent estates, possibilities of
reverter, and the like. We have been warned that the taxpayer and
his estate must have regard to substance, rather than to form, in
answering the question whether the transfer becomes complete only
at the transferor's death. I have assumed that the tax gatherer
could not ignore the same test. Here, I think the Commissioner is
permitted to do just that. In order to reach substance in disregard
of form, this court only recently has treated two independent
contracts, one for insurance and the other for an annuity, as
constituting but a single transaction, and amounting to a gift in
favor of the beneficiary of the insurance policy. Helvering v.
Le Gierse, 312 U. S. 531
The transaction under review in the present case is a common
one. Where an applicant for insurance is beyond the age at which a
company will underwrite the risk, life insurance may be obtained by
purchasing an annuity, which diminishes or eliminates risk of
serious loss to the company by the early death of the insured.
Here, the decedent, a man of about sixty-three, in good health, and
with apparently no contemplation of early death, consummated such
an arrangement with an insurer. I think it demonstrable that the
transaction as respects the beneficiary
Page 325 U. S. 695
his wife, was no different in substance or effect than an
outright gift of money or property to her.
The decedent paid some $14,000 as a single premium for a policy
by which the insurer agreed to pay some $18,000 to the
beneficiaries named -- that is, to his wife, if living, if she were
dead, to his two daughters. The policy was issued to the wife and
designated her as the owner of it. She had the following powers: to
change the beneficiary without the husband's consent, to surrender
the contract, assign or pledge it without his consent or that of
any subsequent owner, change the form or plan of insurance (without
reference to the insured, any beneficiary or subsequent owner), to
surrender the contract and receive a specified cash value, to
borrow on the policy at her sole election, to receive the dividends
in cash or accumulate them to purchase additional insurance, in
either case for her own use. If she exercised none of these rights,
the decedent would have become, at her death, if he were then
living, the owner of the policy in her place and stead.
It is evident that, if the policy he treated as an item of
property, she had sole, full, and untrammeled dominion over it and
its proceeds. She was in truth, and not by any fiction, absolute
owner of the property. I cannot distinguish this case from one in
which a husband, not in contemplation of death, conveys money or
property, real or personal, in fee simple to his wife or to any
other relative. For, in such a case, all, or a portion of the
property, may, upon the death of the donee, descend to the donor
under the intestate laws, and both parties to the transaction know
this to be the fact. Notwithstanding, then, that, under the law,
the wife may, until her death, spend, convey, mortgage or dispose
of the property, I suppose it will be held that, inasmuch as all or
some of it will descend to him if she omits so to do, he will be
held, within the meaning of the statute, to have made a conveyance
to take effect at his death, because the only way he can avoid
Page 325 U. S. 696
it from the donee is to die. Apparently courts are only to look
to the realities of the situation, the essential nature of the
ownership of the donee, where that spells taxability, but are to
ignore the true character of the donee's untrammeled power over the
subject matter of the gift where so to do spells taxability.
For the annuity purchased by the decedent, he gave his check for
the sum of $12,000. The contract describes his wife as the
purchaser. Except for an annuity of a few hundred dollars per
annum, payable to the decedent and subject to reduction under the
terms of the contract, the wife's rights were again absolute. Upon
the death of the decedent, she was to receive a death benefit of
some $6,000, but she might obtain this benefit at any time during
his life, without his consent and without other condition, upon
mere surrender of the contract. Such surrender she might make
without anyone's consent. She might, without decedent's consent,
change to another form of plan or contract, or change the
beneficiary, or assign the contract, might receive the dividends or
allow them to accumulate, borrow money on the contract, and elect a
mode of settlement thereunder. Her assignment of the contract
might, if she so elected, exclude all rights of any beneficiary or
annuitant under it. Here again, a small annuity, payable to the
decedent only so long as his wife permitted, was the sole element
of interest remaining in the decedent. The property was subject to
the wife's dominion, and hers alone.
To say that the decedent here retained an interest which passed
at his death is to fly in the face of the facts. It is to say that,
although we know the donee was as free to deal with the property as
if she were described, in accordance with the niceties of
conveyancing, or the ancient law of estates, as the owner in fee
simple, yet this reality is to be ignored for the purpose of
finding that the decedent gave her something less than absolute and
Page 325 U. S. 697
of the property by enabling her to do exactly as she pleased
with it; that the so-called "string" which he retained upon the
property need not have the quality of a tie that binds.
MR. JUSTICE DOUGLAS joins in this opinion.