Summary
In Skouras v. Commissioner, 14 T.C. 523, 524–525, 1950 WL 270 (1950), affd. 188 F.2d 831 (2d Cir.1951), the taxpayer assigned outright all incidents of ownership in several insurance policies on his life to his five children jointly and continued to pay the premiums thereon.
Summary of this case from Hackl v. Comm'r of Internal RevenueOpinion
Docket No. 19506.
1950-03-31
SPYROS P. SKOURAS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE RESPONDENT.
Kenneth W. Moroney, Esq., for the petitioner. Michael Waris, Jr., Esq., for the respondent.
Petitioner in 1938, after designating each of his five children as primary beneficiary in insurance policies of $150,000 aggregate principal amount and specifying the manner in which the proceeds of the policies at his death were to be utilized for the benefit of the named beneficiaries, assigned to his five children jointly all of his remaining rights and privileges in and to all of the policies. He continued to pay the annual premiums on the policies so assigned until 1944, when by joint action of his oldest daughter, the only adult child, and his wife, who for the purpose at hand had been appointed guardian for the remaining four children, and in order to reduce the premium burden on petitioner, the policies were changed so that the aggregate principal amount of the policies of which each child was primary beneficiary was approximately $75,000. Thereafter the policies were in part paid up policies and in part on an annual premium basis. The parties are agreed that the payment by petitioner of those premiums constituted gifts by him to his children. Held, that the gifts were gifts of future interests and that petitioner was not entitled to the exclusions provided by section 1003(b)(3) of the Internal Revenue Code. Ryerson v. United States, 312 U.S. 405, followed. Kenneth W. Moroney, Esq., for the petitioner. Michael Waris, Jr., Esq., for the respondent.
The respondent determined deficiencies in gift tax of $1,896.27, $1,469.22, and $1,549.88 for 1944, 1945, and 1946, respectively. By an amended answer he has asked for increased deficiencies for 1945 and 1946. The only issue for determination is whether insurance premiums paid by the petitioner during the taxable years on certain policies of insurance on his life constituted gifts of present interests to his five children, or were gifts of future interests.
FINDINGS OF FACT.
The proceeding was submitted upon a stipulation of facts and certain documentary evidence. The facts stipulated are found accordingly. Pertinent portions of these facts and other facts found from the documentary evidence are set forth below.
The petitioner filed his Federal gift tax returns for 1944, 1945, and 1946 with the collector for the third district of New York.
The names and dates of birth of the petitioner's children are as follows: Daphne D., August 30, 1922; Spyros, S., October 28, 1923; Diana J., November 11, 1924, Dionysia C., January 7, 1926; and Plato A., March 7, 1930.
Policies of insurance on the life of the petitioner were issued on the dates, by the companies, and in the amounts as follows:
+---+ ¦¦¦¦¦ +---+
Amount of Date issued Company Policy No. insurance Oct. 13, Mutual Benefit Life Insurance Co. of Newark, 1,743,754 $100,000 1936 N. J Nov. 20, Fidelity Mutual Life Insurance Co., 543,934 25,000 1936 Philadelphia, Pa Dec. 3, 1935 Union Central Life Insurance Co., Cincinnati, 1,250,191 25,000 Ohio Sept. 28, Massachusetts Mutual Life Insurance Co., 1,265,573 75,000 1936 Springfield, Mass. Not shown New York Life Insurance Co., New York, N. Y 12,981,919 30,000 * Aug. 15, Prudential Insurance Co. of America, Newark, 6,759,093 90,000 1936 N. J Oct. 7, 1936 New York Life Insurance Co., New York, N. Y 12,981,918 60,000 * Dec. 31, New England Mutual Life Insurance Co., 880,289 33,000 1935 Boston,Mass Sept. 27, Mutual Life Insurance Co. of New York, New 4,893,052L 90,000 1934 York, N. Y Sept 30, The Connecticut Mutual Life Insurance Co., 881,855 50,000 1935 Hartford, Conn. Nov. 10, Equitable Life Assurance Society of the U. 10,209,805 100,000 1936 S., New York, N. Y. Sept. 27, Mutual Life Insurance Co. of New York, New 4,893,050L 45,000 1934 York, N. Y Sept. 27, Mutual Life Insurance Co. of New York, New 4,893,051L 27,000 1934 York, N. Y Total 750,000
FN* Effective as of September 27, 1936.
Subsequent to the taking out of the above policies the petitioner worked out a plan with respect thereto for the benefit of his five children. He made the necessary changes in the designated beneficiaries to the end that each child became the primary beneficiary in policies of the aggregate face amount of $150,000, with the children of such child and thereafter petitioner's other children and their children as contingent beneficiaries. It was petitioner's plan and purpose that he would continue to pay the premiums on the policies. His next step was to make an assignment of all of his rights in and under the policies to his five children jointly. The designation of beneficiaries and the assignment in the case of each policy were completed generally within three days of each other. The designations of beneficiaries and assignments by petitioner were subject to the terms and conditions of the insurance contracts between him and the various companies.
The mode of settlement under the policies in the event petitioner predeceased the primary beneficiary was that the insurance company should hold the principal amount of the policy on deposit and pay interest thereon monthly to the beneficiary for life, except that in case the beneficiary was a son the beneficiary at age 35 would have the right to withdraw up to 50 per cent of the principal amount.
On May 23, 1938, petitioner executed a request to the Mutual Benefit Life Insurance Co. of Newark respecting the policy issued to him by that company. Under the request the petitioner's daughter, Dionysia C., was made the primary beneficiary of the policy, and her children, if any, and the petitioner's other four children and their children were made contingent beneficiaries. The request contained the following:
I hereby relinquish the right to exercise any rights or options heretofore retained, it being intended that I shall have no legal incidents of ownership in said Policy.
I desire that such of my above named Sons and Daughters as shall be then living shall have the right, jointly, prior to the maturity of the Policy provided said living Sons and Daughters shall all be Twenty-one years of age or over, to exercise the following rights and options: (a) Change of Beneficiary, (b) Loans to Pay Premiums, (c) Reinstatement, (d) Settlement Options, (e) Surrender Options, (f) Cash Loans, (g) Dividend Rights prior to Maturity of Policy and (h) Receipt of Proceeds as Endowment. If (e), (f), (g) and (h), or any of them, shall be so exercised, the person or persons, exercising such rights shall receive all benefits arising therefrom.
I desire that the above right to change the Beneficiary may be exercised at any time and from time to time while this Policy or any extended insurance is in force and not assigned, upon return of the Policy to the Company and its Office in Newark, New Jersey, with a written request by the persons or persons entitled to exercise such right, for the appropriate indorsement by the Company of the Policy.
On May 23, 1938, the petitioner executed a ‘Mode of Settlement Agreement and Ownership Clause‘ relative to the Fidelity Mutual Life Insurance Co. policy. By this instrument the petitioner's daughter, Dionysia C., was made the primary beneficiary of the policy and her children, if any, and the other four children of the petitioner and their children were made contingent beneficiaries. The instrument also provided:
It is understood and agreed that the said Dionysia C. Skouras, Spyros S. Skouras, Plato A. Skouras, Daphne D. Skouras, and Diana J. Skouras, jointly or the survivor of them, shall be the owners of this policy during the lifetime of them or the survivor of them, and in event of the death of any one of said five children of the insured during the lifetime of the insured, the ownership of such deceased child in this policy shall vest jointly in the survivors of said vive named children of the insured, and in event of the death of the last survivor of said five named children of the insured, prior to the death of the insured, the ownership of such last survivor in this policy shall vest in the executors or administrators of the last survivor of said five named children of the insured and it is hereby agreed with the Company that the owners of this policy shall have the right without the consent of the insured and to the exclusion of the insured, to receive payment of and to receipt for any dividends which may be payable under the provisions of said policy entitled ‘Participation in Surplus— Dividends‘; to obtain loans on the policy in accordance with the provisions thereof entitled ‘Loan Provisions‘; to surrender the policy for its cash surrender value or for paid-up insurance in accordance with the provisions thereof entitled ‘Non-forfeiture Provisions‘; to change and successively change any beneficiary in accordance with the provisions thereof entitled ‘Miscellaneous Provisions‘; to elect to have the proceeds of this policy paid in accordance with the provisions thereof entitled ‘Optional Modes of Settlement‘; and to obtain all the other benefits under the policy and to exercise all options, rights, and privileges provided therein or which The Fidelity Mutual Life Insurance Company may consent to grant, anything in said policy to the contrary notwithstanding.
On May 20, 1938, the petitioner executed ‘Agreement Of Change Of Beneficiary And Election Of Settlement‘ respecting the Union Central Life Insurance Co. policy. By this instrument the petitioner's daughter, Dionysia C., was made the primary beneficiary of the policy and her children, if any, and the petitioner's other four children and their children were made contingent beneficiaries. On May 23, 1938, the petitioner executed ‘Agreement As To Ownership‘ relative to the policy which provided as follows:
The insured shall have no right to change the beneficiaries and shall have no right, title or interest whatsoever in the policy. During the lifetime of the insured, all incidents of ownership in the policy shall be vested jointly in said Daphne D. Skouras, Spyros S. Skouras, Plato A. Skouras, Dionysia C. Skouras and Diana J. Skouras, children of the insured, if living, or to the survivors or survivor of them, otherwise in the estate of the last survivor. During the lifetime of the insured, BUT NOT AFTER HIS DEATH, the right shall be reserved jointly to said children of the insured, if living, on their sole signatures and for their own benefit and to the survivors or survivor of them, to change the beneficiaries, receive dividends, assign the policy as collateral security, surrender the same to the Company for its cash value and to exercise any right, option or benefit contained in the policy, including the right to revoke these provisions governing control of the policy.
On May 20, 1938, the petitioner executed ‘Request For Amendment‘ respecting the Massachusetts Mutual Life Insurance Co. policy. By this instrument the petitioner's daughter, Diana J., was made the primary beneficiary of the policy and her children, if any, and the petitioner's other four children and their children were made contingent beneficiaries. The instrument contained the following:
All rights, privileges, benefits, options and elections granted to or conferred upon the insured by said policy are hereby vested in the said Diana, Spyros, Plato, Dionysia and Daphne, jointly, or the survivors or survivor of them, and after the death of all of said Diana, Spyros, Plato, Dionysia and Daphne, all of the aforesaid rights shall vest in the executors or administrators of the last survivor of the said Diana, Spyros, Plato, Dionysia and Daphne, it being intended that I shall have no legal incidents of ownership in said policy.
Thereafter and on May 23, 1938, the petitioner executed a ‘Statement Of Understanding‘ respecting the policy and the designation of beneficiaries which reads as follows:
I, the undersigned, Spyros P. Skouras, the insured under policy numbered 1265573, issued by the Massachusetts Mutual Life Insurance Company, of Springfield, Massachusetts, do hereby acknowledge to said Company that I fully understand that the designation of my children, Diana J. Skouras (born November 11, 1924), Spyros S. Skouras (born October 28, 1923), Plato A. Skouras (born March 7, 1930), Dionysia C. Skouras (born January 7, 1926) and Daphne D. Skouras (born August 30, 1922), jointly, or the survivors or survivor of them, or the executors or administrators of the last survivor of them, as absolute beneficiaries under said policy, that after the endorsement of said change, the exercises of the rights under said policy will require the joint consent of such of the said absolute beneficiaries as may then be living, and that in the event of the death of all of the said absolute beneficiaries prior to maturity of said policy, ownership and control of said policy will be in the executors or administrators of the last survivor of said absolute beneficiaries.
I further understand that said absolute beneficiaries will only have the right to exercise such rights prior to maturity of the policy, and that upon said maturity the rights of said parties will become fixed and the proceeds will be payable in accordance with the settlement agreement then in force.
I also understand that, during minority of the said absolute beneficiaries, their consent to the exercise of the rights under said policy can be given only by a legal guardian acting under an Order of Court.
I have read the foregoing statement and thoroughly understand its provisions and sign same of my own free will.
On May 25, 1938, endorsement was made on the policy of the ‘Request For Amendment‘ executed by petitioner on May 20, 1938.
On May 20, 1938, the petitioner executed ‘Settlement Agreement‘ relative to New York Life Insurance Co. policy No. 12,981,919. By that instrument the petitioner's daughter, Diana J., was made the primary beneficiary of the policy and her children, if any, and the petitioner's other children and their children were made contingent beneficiaries. On the same day, May 20, 1938, the petitioner executed ‘Settlement Agreement‘ respecting New York Life Insurance Co. policy No. 12,981,918. In that instrument the petitioner's son, Spyros S., was made primary beneficiary of the policy and his children, if any, and the petitioner's other four children and their children were made contingent beneficiaries. With respect to the foregoing two policies the petitioner, on May 23, 1938, executed an ‘Assignment‘ which contained the following:
IN CONSIDERATION OF NATURAL LOVE & AFFECTION, I, being of legal age, hereby assign and transfer unto DIANA J. SKOURAS, of 2 Shore Road, Mamaroneck, New York; SPYROS S. SKOURAS, of 2 Shore Road, Mamaroneck, New York; PLATO A. SKOURAS, of 2 Shore Road, Mamaroneck, New York: DIONYSIA C. SKOURAS, of 2 Shore Road, Mamaroneck, New York, and DAPHNE D, SKOURAS, of 2 Shore Road, Mamaroneck, New York, my children, share and share alike or to the survivor, the Policies of Insurance known as No. 12981918/9 issued by the NEW YORK LIFE INSURANCE COMPANY upon the life of SPYROS P. SKOURAS, of Mamaroneck, N.Y., and all dividend, benefit and advantage to be had or derived therefrom subject to the conditions of the said Policies, and the Rules and Regulations of the Company, and to any indebtedness to the New York Life Insurance Company against said Policies subject to the terms of a Settlement Agreement dated the 20 day of May, 1938.
Under the provisions of a rider dated June 20, 1938, attached to the Prudential Life Insurance Co. of America policy, the petitioner's son, Spyros S., was made the primary beneficiary of the policy and his children, if any, and the petitioner's other children and their children were made contingent beneficiaries. On June 18, 1938, the petitioner executed ‘Request For Amendment‘ of the policy which was made in a rider dated June 21, 1938, attached to the policy and provided as follows:
PROVISIONS AS TO OWNERSHIP OF THE POLICY
All legal incidents of ownership in the Policy, including the rights, benefits and advantages which the printed provisions thereof purport to confer on the Insured, shall, anything in the Policy to the contrary notwithstanding but subject to any limitation herein set forth, belong to Spyros S. Skouras, Plato A. Skouras, Daphne D. Skouras, Diana J. Skouras and Dionysia C. Skouras, children of the Insured, jointly, or the survivors or survivor of them, while living, and after the death of the survivor of said Spyros S. Skouras, Plato A. Skouras, Daphne D. Skouras, Diana J. Skouras and Dionysia C. Skouras, to the executors, administrators or assigns of the last survivor. Without limiting the generality of such incidents of ownership, such incidents shall include the right, from time to time:
(a) to change the Beneficiary:
(b) to designate, if the Policy is on the Endowment plan, any person or persons to receive payment upon maturity as an Endowment; and
(c) to receive, if the Policy contains provisions as to total and permanent disability, the benefits and advantages of such provisions if they become effective because of disability of the Insured as defined in such provisions.
On May 23, 1938, the petitioner executed a ‘Special Settlement Request‘ with respect to the New England Mutual Life Insurance Co. policy. In that instrument the petitioner's daughter, Daphne D., was made primary beneficiary of the policy and her children, if any, and the petitioner's other children and their children were made contingent beneficiaries. The instrument also provided:
The Insurer shall have no right to change the beneficiaries and shall have no right, title or interest whatsoever in the policy. During the lifetime of the Insured all incidents of ownership in the policy shall be vested jointly in DAPHNE D. SKOURAS, SPYROS S. SKOURAS, PLATO A. SKOURAS, DIONYSIA C. SKOURAS and DIANA J. SKOURAS, children of the Insured, if living, and the survivors or survivor of them, otherwise in the executors, administrators or assigns of the last survivor of said children of the Insured. During the lifetime of the Insured but not after his death the right shall be reserved jointly, to said children of the Insured, if living, on their sole signature and for their own benefit, and to the survivors or survivor of them, otherwise to the executors, administrators or assigns of the last survivor of said children of the Insured, to change the beneficiaries, receive dividends, assign the policy as collateral security, surrender the same to the Company for its cash value, and to exercise any right, option or benefit contained in the policy, including the right to change all provisions governing control of the policy.
On May 23, 1938, the petitioner executed ‘Mode of Settlement‘ with respect to the Mutual Life Insurance Co. of New York policies Nos. 4,893,050L, 4,893,051L, and 4,893,052L. Under the instrument relating to policies Nos. 4,893,051L and 4,893,052L the petitioner's daughter, Daphne D., was made primary beneficiary of the policies and her children, if any, and the petitioner's other children and their children were made contingent beneficiaries. Under the instrument relating to policy No. 4,893,050L the petitioner's daughter, Diana J., was made primary beneficiary of the policy and her children, if any, and the petitioner's other children and their children were made secondary beneficiaries. The instrument relating to policies Nos. 4,893,051L and 4,893,052L contained the following:
All benefits, options, rights and privileges shall be reserved to said Daphne D. Skouras, and to Diana J. Skouras, Spyros S. Skouras, Plato A. Skouras and Dionysia C. Skouras, other children of said marriage, jointly, the survivors or survivor of them, and after the death of the last survivor of said children, to the executors or administrators of such last survivor.
The Insured hereby consents to and agrees in all acts which any of said Daphne D. Skouras, said Diana J. Skouras, and said Dionysia C. Skouras may taken in regard to this policy. This consent is given in accordance with the provisions of Section 52 of the Domestic Relations Law of the State of New York.
A statement similar to the foregoing was contained in the instrument relating to policy No. 4,893,050L.
Thereafter, on June 7, 1938, the Mutual Life Insurance Co. of New York made the following endorsement on each of policies Nos. 4,893,050L; 4,893,051L, and 4,893,052L:
RIGHTS: Anything in this policy to the contrary notwithstanding, prior to the maturity of this policy, the Insured's children, Diana J. Skouras, Daphne D. Skouras, Spyros S. Skouras, Plato A. Skouras and Dionysia C. Skouras, jointly, the survivors or survivor of them, and after the death of the last survivor of said children, the executors or administrators of the last survivor of said children, several of the beneficiaries, may, without the consent and to the exclusion of the Insured or any other beneficiary, receive, exercise and enjoy every benefit, option, right and privilege conferred by this policy or allowed by the Company.
On May 23, 1938, the petitioner executed an instrument addressed to the Connecticut Mutual Life Insurance Co. with respect to the policy issued to him by that company. By that instrument the petitioner's son, Plato A., was made primary beneficiary of the policy and his children, if any, and the other children of the petitioner and their children were made contingent beneficiaries. On May 26, 1938, the petitioner executed an agreement with that company whereby upon the death of the petitioner the proceeds of the policy were to be held by the company on certain specified terms. The agreement contained the following:
The Agreement will terminate
(a) if said Plato A. Skouras, Spyros S. Skouras, Daphne D. Skouras, Dionysia C. Skouras, and Diana J. Skouras, children of the Insured, jointly, or the survivors or survivor of them, shall file with the Company at its Home Office written application for its termination;
On May 24, 1938, the petitioner executed ‘Request for Amendment‘ with respect to the policy wherein he requested that endorsement be made on the policy of the following:
The right to receive all cash values, amounts, due at endowment maturity, if any, loans and dividends accruing under said Policy, to change the beneficiary named therein, to exercise all privileges and options contained therein, and to agree with the Company to any release, modification, or amendment of said Policy, shall belong and be available without the consent of any other person to Plato A. Skouras, Spyros S. Skouras, Daphne D, Skouras, Dionysia C. Skouras, and Diana J. Skouras, my children, jointly, or the survivors or survivor, of if none believing, to the Executors, Administrators, or Assigns of the last survivor of them.
On May 27, 1938, the requested endorsement was made on the policy.
On May 23, 1938, the petitioner executed a ‘Request For Change of Policy‘ respecting the Equitable Life Assurance Society of the United States policy. By this instrument the petitioner's son, Plato A., was made the primary beneficiary of the policy and his children, if any, and the petitioner's other children and their children were made contingent beneficiaries. In this instrument the petitioner designated the owner of the policy and pursuant to such designation a rider containing the following was attached to the policy:
OWNER. The rights conferred upon the Owner by the terms of this policy shall be vested in the Insured's children, Plato A. Skouras, Spyros S. Skouras, Daphne D. Skouras, Dionysia C. Skouras and Diana J. Skouras, jointly during their lifetime. Upon the death of any one of the Insured's said children, such rights shall be vested in the survivors of them, jointly during their lifetime, or if only one of them be then surviving, such rights shall be vested in the survivor, during his or her lifetime. Upon the death of the last survivor of the Insured's said children, such rights shall be vested in the executors or administrators of such last survivor.
A person while thus vested with the rights of Owner may, prior to the death of the Insured, exercise the rights conferred upon the Owner by the terms of this policy without the consent of the Insured or any special beneficiary.
In 1944 the petitioner felt that he could no longer afford to continue paying premiums in the full amounts required to carry the policies previously described. He felt that he was able to keep up the payment of premiums on the insurance in reduced amounts. Donald M. Munn, who handled the insurance problems of petitioner, worked out a plan which was approved by petitioner for continuing the above insurance along that line. By this plan the amount of insurance for which each child was primary beneficiary was to be reduced to approximately $75,000. The values in the policies were such that a portion could then be taken as paid-up insurance. The balance of the insurance as reduced was to be carried on an annual premium basis, with petitioner continuing to pay the premiums. All of the children except Daphne D. were still minors.
A petition was filed in the surrogate's court by each minor child for the appointment of Sarah K. Skouras, the mother, as guardian. The stated purpose was to have someone legally empowered to act for the minors to the end that the required consents for the changing of the policies could be executed by and on behalf of the five children. All of the policies except Mutual Life Insurance Co. of New York policies Nos. 4,893,050L and 4,893,051L were changed. Those two policies were continued on an annual premium basis as they were. The petitioner executed a waiver of service of the petition and a consent to the entry of a decree appointing Sarah K. Skouras as guardian. The factual background for the petition covering the policies, their assignments by petitioner to his children, the purpose sought to be accomplished by the original assignments, the necessity for the revisions, the need for the appointment of a guardian for the minor children, the action to be taken after such appointment, and the results to be accomplished were set forth in an affidavit by Munn. A supporting affidavit of Sarah K. Skouras was also attached to the petitions. Her affidavit, in the main, merely recited that her husband, the petitioner, did not feel that he was able to carry the policies as they were then set up and that the proposed change was accordingly necessary, and, further, that she had read the affidavit of Munn and approved his statements therein. Munn is his affidavit expressed the view that any change in the policies which could be effected by the owners could be made only by the joint action of all five owners and that Daphne D., being the only adult child, the appointment of a guardian for the other children was essential. On the basis of the petitions and the supporting papers, the court entered its order in the petition of each minor child naming Sarah K. Skouras, the mother, as general guardian, with limited powers and authority to make the election and give the consents on behalf of the minors for the purpose of making the proposed changes in the insurance policies on the life of petitioner ‘owned by the said minor and the other children of the said Spyros K. Skouras and in which policies the said minor is either a primary or secondary beneficiary.‘
During 1944, 1945, and 1946 the petitioner paid premiums on the following policies as indicated:
+-----------------------------------------------------------------------------+ ¦ ¦1944 ¦1945 ¦1946 ¦ +-----------------------------------------------+---------+---------+---------¦ ¦Mutual Benefit Life Ins. Co. of Newark policy ¦$1,319.74¦$1,315.60¦$1,319.28¦ ¦No. 1,743,754 ¦ ¦ ¦ ¦ +-----------------------------------------------+---------+---------+---------¦ ¦New York Life Ins. Co. policy No. 12,981,919 ¦1,101.00 ¦202.95 ¦134.00 ¦ +-----------------------------------------------+---------+---------+---------¦ ¦Prudential Ins. Co. of America policy No. ¦1,297.20 ¦1,456.00 ¦1,444.50 ¦ ¦6,759,093 ¦ ¦ ¦ ¦ +-----------------------------------------------+---------+---------+---------¦ ¦New York Life Ins. Co. policy No. 12,981,918 ¦768.46 ¦ ¦ ¦ +-----------------------------------------------+---------+---------+---------¦ ¦New England Mutual Life Ins. Co. policy No. ¦ ¦829.08 ¦413.70 ¦ ¦1,030,063 ¦ ¦ ¦ ¦ +-----------------------------------------------+---------+---------+---------¦ ¦Equitable Life Assurance Society of the U.S. ¦129.00 ¦ ¦ ¦ ¦policy No. 10,209,805 ¦ ¦ ¦ ¦ +-----------------------------------------------+---------+---------+---------¦ ¦Equitable Life Assurance Society of the U.S. ¦1,693.40 ¦1,455.48 ¦1,451.32 ¦ ¦policy No. 10,247,456 ¦ ¦ ¦ ¦ +-----------------------------------------------+---------+---------+---------¦ ¦Mutual Life Ins. Co. of New York policy No. ¦1,324.80 ¦1,324.35 ¦1,278.00 ¦ ¦4,893,050L ¦ ¦ ¦ ¦ +-----------------------------------------------+---------+---------+---------¦ ¦Mutual Life Ins. Co. of New York policy No. ¦794.88 ¦794.61 ¦766.80 ¦ ¦4,893,051L ¦ ¦ ¦ ¦ +-----------------------------------------------+---------+---------+---------¦ ¦Total ¦8,428.48 ¦7,378.07 ¦6,807.60 ¦ +-----------------------------------------------------------------------------+
In determining the deficiencies involved herein the respondent determined that the total premiums paid by the petitioner on the policies heretofore set forth amounted to $8,427.88, $6,529.86, and $6,447.69 for 1944, 1945, and 1946, respectively. He further determined that such amounts constituted gifts of future interests with respect to which no exclusions were allowable in determining the petitioner's gift tax liability for the respective years.
OPINION.
TURNER, Judge:
The parties are agreed that the premiums paid by petitioner on the policies herein during the taxable years constituted gifts by him to his children in those years. The only question in dispute is whether the gifts were gifts of future interests within the meaning of the statute so as to deprive the petitioner of the statutory exclusions provided by section 1003(b)(3) of the Internal Revenue Code.
SEC. 1003. NET GIFTS.(b) EXCLUSIONS FROM GIFTS.—(3) GIFTS AFTER 1942.— In the case of gifts (other than gifts of future interest in property) made to any person by the donor during the calendar year 1943 and subsequent calendar years, the first $3,000 of such gifts to such person shall not, for the purposes of subsection (a), be included in the total amount of gifts made during such year.
It is the position of the respondent that under the doctrine of Ryerson v. United States, 312 U.S. 405, the interests of the donees, petitioner's children, were future interests within the meaning of the statute and accordingly no statutory exclusions on the gifts are allowable. It is the claim of the petitioner that under the assignments herein the children became full and complete joint owners of the insurance policies and that the general rules of law applicable to any property wholly and directly owned by two or more persons as joint tenants is applicable; that in the case of such joint tenancy, each person has a present right to sever the joint tenancy at will and to take, consume, pursue, or use in any manner satisfactory to himself his pro rata share of such property; and that such present and existing rights in and to the property is a present and not a future interest in the property within the meaning of the above statutory provisions.
It is our conclusion that the position of the petitioner is not well taken, for where the use, possession, or enjoyment of the donee is postponed to the happening of future uncertain events the interest of the donee is a future interest within the meaning of the statute. United States v. Pelzer, 312 U.S. 399.
We do not have here the simple case of property held in joint tenancy such as petitioner uses as his basis for comparison. The property involved consisted of contracts of insurance on petitioner's life. Normally a life insurance contract affects three parties— the insured, the insurance company, and the beneficiary. The insured has rights, but he also has liabilities. He may retain and hold certain privileges, but there are usually offsetting obligations. As a general proposition, a named beneficiary has a vested right and, unless as a part of the contract itself the right to change the beneficiary has been reserved, it is a right of which he can not be divested without his consent. Where the right to change a beneficiary has been reserved, the rights of the beneficiary are vested conditionally or rather are vested subject to the right of the insured to divest them.
In the instant case, the record clearly shows that the steps taken by petitioner were taken advisedly. His first step was to divide the insurance coverage into five equal parts and to set over to each child as primary beneficiary, separate and apart from his or her brothers and sisters, one such part. His next step was to assign all of the rights and privileges retained by him in all of the policies to the children jointly, not individually. When, with care, he first designated each child as primary beneficiary of policies having an aggregate principal amount of $150,000 and prescribed the mode of settlement at his death and then made the assignments over of his reserved rights and privileges in and to the policies to his five children jointly, he knew and intended that the settlement of the policies would be made according to the plans set up unless at some future time the children by joint action made a change of beneficiaries or prescribed some other plan of settlement. If he had been desirous of or had intended placing all of the incidents of ownership to one-fifth of the aggregate principal amount of all policies in the absolute control of each child separately as petitioner contends, the simple method would have been to have made the assignment to each child of all his rights and incidents of ownership in the policies of which each such child was the primary beneficiary. That he had no such plan or intention was further shown in the guardianship proceedings in 1944, when it was found to be expedient and desirable to have the face amount of the policies reduced and to take paid-up policies in part so that the annual premium payments on the remaining policies would be less burdensome to him. Supporting the guardianship petition, Munn, who had been adviser to petitioner and who presumed to speak for him and who had apparently worked out and devised the whole program, plainly and definitely stated that the program had been designed to give to the children, not individually and separately, but jointly, the powers and privileges which petitioner had assigned. In its action the court acted on the representation that the changes desired, or to put it differently, the exercise of the rights of ownership over the policies, could be taken only by the joint action of all of the children. It thus appears that the petitioner, by his act in designating the beneficiaries as he did and then making the assignments to his five children jointly, had postponed the possession and enjoyment of the rights and interests in and to the policies or the proceeds thereof until his death or until such time as the children, acting jointly, might change or negative the action he had thus taken.
While, as the petitioner points out, there was not a grant to trust as in the Ryerson case, nevertheless, the effect of the joint assignments was in substance the same as the grant to trust in that case. The ‘use and enjoyment of any part‘ of the policies and property interests represented thereby were postponed to the happening of future and uncertain events. The interests conveyed were accordingly future interests within the meaning of the statute and, since the payment of the premiums in the taxable years had no effect other than that of preserving, maintaining, and building up the policies which had been so assigned, the payment of the cash premiums likewise constituted gifts of future interests. Ryerson v. United States, supra, and United States v. Pelzer, supra. The action of the respondent in denying the statutory exclusions with respect to each of the gifts in question is accordingly sustained.
Decision will be entered for the respondent.