Clise v. Commissioner

CHARLES F. CLISE AND JAMES W. CLISE, JR., AS EXECUTORS OF THE ESTATE OF ANNA H. CLISE, DECEASED, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Clise v. Commissioner Docket No. 96151. United States Board of Tax Appeals 41 B.T.A. 820; 1940 BTA LEXIS 1142; April 11, 1940, Promulgated *1142 1. For estate tax purposes, section 811(g), Internal Revenue Code, a policy taken out by the decedent upon her own life the proceeds of which are receivable by beneficiaries other than her estate is to be regarded as insurance, irrespective of the contemporaneous issuance to her of an annuity contract as a condition of the issuance of the policy. Estate of Anna M. Keller,39 B.T.A. 1047, followed. 2. An annuity was purchased by the decedent within two years of death, payable to himself for life and thereafter to another for life. The annuitant had no right to commute the payments or change the successor beneficiary. Held, there was no transfer to take effect in possession or enjoyment at or after death and no part of the value of the annuity contract is within the gross estate. Warren H. Lewis, Esq., and K. I. Ghormley, Esq., for the petitioners. John H. Pigg, Esq., for the respondent. STERNHAGEN *820 The respondent determined a deficiency of $7,257.67 in estate tax, including in the gross estate (1) the entire value of certain contracts, treating them as annuities and not insurance with $40,000 exempted, and*1143 (2) the value of others as transfers intended to take effect in possession or enjoyment at or after death. The facts were in large measure stipulated. FINDINGS OF FACT. Anna H. Clise, the decedent, a resident of Seattle, Washington, was born March 9, 1866, and died February 11, 1936. She was survived by her husband, two sons, a daughter, a brother, and eleven grandchildren. The estate tax return was filed by petitioners January 11, 1937, with the collector at Tacoma, Washington. She made a will January 10, 1936. *821 1. On June 30, 1933, the New York Life Insurance Co. issued to decedent a $2,000 single premium, ordinary life insurance policy, No. 12,073,779, on her own life, naming her three children as beneficiaries. She paid a premium of $1,602.50. She was then 67 years of age. Upon her death the insurance company paid the $2,012.83 proceeds of the policy to the beneficiaries in equal shares. Concurrently with the issuance of the life insurance policy, the same company issued to decedent for a single premium of $517.50 a straight life annuity contract, No. 44,800, agreeing to pay her an annuity of $52.86 during the remainder of her life. On December 28, 1934, the*1144 same insurance company, for a single premium of $18,130.20 issued to her a $22,000 insurance policy, No. 12,467,023, similar to that of June 30, 1933, the proceeds of which, $22,038.98, were paid to her eleven grandchildren as beneficiaries. On the same date, the company issued to her an annuity contract similar to that of June 30, 1933, for a single premium of $5,189.80, the annuity being $492, payable $41 monthly. A physical examination of the decedent was not required by the insurance company for the insurance policies issued June 30, 1933, and December 28, 1934, the company accepting in lieu of the examination the issuance of the annuity contracts. The requirement by the company of the decedent's purchase of the annuity contracts was due to the amount of the risk involved, namely, the difference between the consideration and the death benefit. The company would not have issued the insurance policies to the decedent without issuing the annuity contracts in conjunction therewith. The decedent could have obtained the annuity contracts without the insurance policies, in which case the annuities would have been identical with those provided for in the annuity contracts actually*1145 issued. The company at all times treated the life insurance policies and the annuities as separate. 2. On December 10, 1934, the New York Life Insurance Co., for a single premium of $7,500, issued to decedent a joint and survivor nonparticipating annuity contract, No. 55,829. The company agreed to pay to the decedent, during her lifetime and upon her death to her son, James W. Clise, Jr., if living, an annuity of $375.36, payable in equal monthly payments of $31.28 each, on the 23d day of each month. The contract provided that the decedent should not have the right to commute, anticipate, transfer, or assign any right or interest in or under the contract or any payments provided for therein. James W. Clise, Jr., who was born September 1, 1900, was 35 years of age at the time of the decedent's death. The value of the contract at the date of the decedent's death was $6,170.24. On December 10, 1934, the New York Life Insurance Co. issued three other similar annuity contracts, which were identical with contract No. 55,829, except as follows: Contract No. Monthly installment of annuity Value at date of decedent's death Second annuitant Age at decedent's death 55832 $35.03 $5,931.00 Chas. F. Clise [45] 55841 34.28 5,461.52 Ruth C. Colwell [47] 55842 45.83 4,563.12 Arthur T. Herr [64] *1146 *822 On December 15, 1934, the National Life Insurance Co., upon payment of $5,000 for each, issued four joint and survivor nonparticipating annuity contracts of that date, similar to those issued by the New York Life Insurance Co., except as follows: Contract No. Monthly installment of annuity Value at date of decedent's death Second annuitant 631663 $22.95 $5,290.25 Ruth C. Colwell. 631664 23.45 5,226.25 Charles F. Clise. 631665 20.90 5,472.94 James W. Clise, Jr. 631666 30.75 4,247.65 Arthur T. Herr. On December 28, 1934, the National Life Insurance Co., upon payment of $2,000 for each, issued four joint and survivor nonparticipating annuity contracts of that date, similar to those issued by the New York Life Insurance Co., except as follows: Contract No. Monthly installment of annuity Value at date of decedent's death Second annuitant 632500 $9.42 $2,099.42 Charles F. Clise. 632501 9.20 2,120.91 Ruth C. Colwell. 632502 8.38 2,194.41 James W. Clise, Jr. 632503 12.34 1,704.59 Arthur T. Herr. On December 27, 1934, the Equitable Life Assurance Society, upon payment of $5,000 for each, issued*1147 four joint and survivor nonparticipating annuity contracts of that date, similar to those issued by the New York Life Insurance Co., except as follows: Contract No. Monthly installment of annuity Value at date of decedent's death Second annuitant 9666306 $22.87 $3,643.67 Ruth C. Colwell. 9666307 23.38 3,958.52 Charles F. Clise. 9666308 20.85 4,112.84 James W. Clise, Jr. 9666309 30.56 3,042.75 Arthur T. Herr. On March 6, 1934, the New York Life Insurance Co. issued to decedent, for a single premium of $5,000, a nonparticipating refund annuity, No. 48,113. The amount of $192.80 was payable semiannually to decedent's daughter and two sons, in equal shares. The value of the annuity at the date of decedent's death was $4,421.60. On March *823 14, 1934, the Sun Life Assurance Co. of Canada issued to decedent, for a premium of $10,000, a similar refund annuity, No. A 108,008, except that the amount payable semiannually was $400.20 and the value of the annuity at the date of decedent's death was $8,799.40. The decedent reserved the right to change the beneficiaries of each of these refund annuities. The decedent was blind. Otherwise*1148 she had been in good physical condition and health until September 1935. She then disclosed symptoms of illness which progressed until her death from cancer. She had for many years been a firm and active believer in Christian Science and said that her blindness was nonexistent, that physical death was merely a manifestation of error, and that she would not recognize it as a possible fact. Her investments had at times been unsuccessful. A suit against her husband for accounting disturbed her as threatening the safety of her wealth. She therefore consulted her son for advice on investments and he suggested investment in life insurance, depriving her of control over her capital and protecting her from the result of such claims. The purchase of the foregoing annuities was not made in contemplation of death. OPINION. STERNHAGEN: 1. As to the New York Life Insurance Co. policies No. 12,073,779 and No. 12,467,023, the Commissioner hled them to be annuity contracts, the value of which is included within the gross estate in its entirety and not only to the extent of the excess over $40,000. Internal Revenue Code, sec. 811(g). This is contrary to *1149 Estate of Anna M. Keller,39 B.T.A. 1047; on review C.C.A., 3d Cir.; Estate of Cecile Le Gierse,39 B.T.A. 1134; on review C.C.A., 2d Cir.; and is therefore reversed. 2. The Commissioner included the value of the annuity contracts in the gross estate under section 811(c) as property "having been transferred to take effect in possession or enjoyment at or after death." He made no determination that they were transfers made in contemplation of death. The petitioners concede that the value ($4,421.60) of the New York Life refund annuity No. 48,113 and the value ($8,799.40) of the Sun Life contract, in both of which decedent reserved the right to change beneficiaries, are properly within the gross estate. The remaining 16 contracts were all made in December 1934 and provided for annuities payable to the decedent for life and then to designated survivors for life. Each was issued for a single premium and gave no rights to decedent except to receive the periodic payments. The named successor annuitant in each instance actually survived the decedent. *824 The evidence, irrespective of the decedent's belief that death is but a mental aberration, *1150 establishes that the annuity contracts were made not in contemplation of death but to provide for a safer investment and a more assured income. This finding has been made and petitioners have therefore proved "to the contrary" of the two-year statutory presumption. The Commissioner relies upon Internal Revenue Code, section 811(c), which is the result of the amendment by the Joint Resolution of March 3, 1931, which in turn was adopted to restrict the practical effect of May v. Heiner,281 U.S. 238, and Burnet v. Northern Trust Co.,283 U.S. 782; McCormick v. Burnet,283 U.S. 784, and Morsman v. Burnet,283 U.S. 783. See Hassett v. Welch,303 U.S. 303. He regards Chemical Bank & Trust Co. et al., Executors,37 B.T.A. 535, Commissioner's petition for review dismissed, C.C.A., 2d Cir., Jan. 3, 1939, as inapplicable because the annuity contract there considered was made before March 3, 1931, and hence protected from the retroactive application of the amended statute. *1151 Hassett v. Welch, supra. Annuity contracts such as these have never been brought by statute within the gross estate. Seymour Johnson et al., Executors,10 B.T.A. 411. May v. Heiner, supra, did not consider them directly or indirectly, and the remedial resolution of March 3, 1931, did not purport to deal with them. By contracting for an annuity in consideration for a single sum the decedent was not transferring property (even though the term property be used to include money, cf. Halliburton v. Commissioner, 78 Fed.(2d) 265, C.C.A., 9th Cir.), of which she was retaining the possession or enjoyment or the income. She was purchasing an annuity for herself and her survivor. The property (money) which she was "transferring" was irretrievably gone and for it she was getting a promise of an annuity, payment of which was not limited or related to income from the consideration which she paid, but was to be made at all events. It may not be regarded as income. *1152 Helvering v. Butterworth,290 U.S. 365; Helvering v. Pardee,290 U.S. 365; Ronald De Reuter,7 B.T.A. 600, 607; affd., Burnet v. Whitehouse,283 U.S. 148. Thus the language of the statute, either before or after the amendment, does not touch it. It is still true under May v. Heiner, supra, that the rights of decedent's survivors are not to be regarded as attributable to the death, but to a contract made during life, and decedent did not retain for herself the possession or enjoyment of the property transferred or the income from it. The determination including the value of the sixteen contracts in the gross estate is reversed. Decision will be entered under Rule 50.