United States v. Bess
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357 U.S. 51 (1958)
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U.S. Supreme Court
United States v. Bess, 357 U.S. 51 (1958)
United States v. Bess
Argued April 7, 1958
Decided June 9, 1958*
357 U.S. 51
This is a civil action brought by the Government to recover, in equity, from the beneficiary of life insurance policies the amount of federal income taxes owed by the insured at the time of his death and for some of which liens had attached to all his property under § 3670 of the Internal Revenue Code of 1939 before his death. The insured, a resident of New Jersey, had retained the right to change the beneficiaries of the policies and, except as to one policy, the right to draw down or borrow against the cash surrender values and to assign the policies. He had paid all the premiums, and none was paid in fraud of his creditors. Some of his federal income tax liabilities were paid out of the assets of his estate, but others remained unpaid when his estate was adjudged insolvent.
Held: because of the tax liens which had attached to all of the insured's property before his death, the beneficiary is liable to the extent of the cash surrender values of his policies. Pp. 357 U. S. 52-59.
1. Had there been no lien, the beneficiary would not be liable, because, under New Jersey law, the beneficiary of a life insurance policy is entitled to its benefits against all creditors except to the extent of the amount of any premiums paid in fraud of creditors. Commissioner v. Stern, ante, p. 357 U. S. 39. Pp. 357 U. S. 53-54
2. Because, prior to the death of the insured, liens had attached under § 3670 to all of his assets, including the cash surrender values of his life insurance policies, the beneficiary is liable to the extent of such cash surrender values. Pp. 357 U. S. 54-59.
(a) Under New Jersey law, the insured did not possess, prior to his death, "property" or "rights to property," within the meaning of §3670, in the proceeds of his life insurance policies; but he did possess such "property" or "rights to property" in their cash surrender values; and the federal tax lien attached under § 3670 even if, under state law, his property right represented by the cash surrender values was not subject to creditors' liens. Pp. 357 U. S. 55-57.
(b) For the purposes of § 3670, there was a transfer of property from the insured to the beneficiary, and the lien which had attached to the cash surrender values before his death followed that property into the hands of the beneficiary. Pp. 357 U. S. 57-59.
243 F. 2d 675 affirmed.