42 A.2d 366 | Conn. | 1945
Lead Opinion
This case presents the question whether a succession tax is due from the estate of Katherine B. Day based upon payments to certain persons named as beneficiaries in an agreement entitled a life insurance policy which the executors claim to be exempt under 487c of the 1935 Supplement to the General Statutes. On May 20, 1937, Mrs. Day applied for and obtained the policy in the amount of $40,000, paying therefor a single premium of $37,670. One-fourth of the sum to become due at her death was payable to each of her four children, his or her children, or, if none, to Mrs. Day's issue per stirpes. She reserved the right to change the beneficiaries. The policy contained the usual provisions as to loans upon it and as to its surrender in accordance with a table of cash values stated in it. On the same day the policy was issued, the insurance company, in consideration of a premium of $6330, made an annuity contract with Mrs. Day in which it agreed to pay her during her life $83.68 each month. No physical examination was required of her as a condition for the making of either agreement. She was eighty-three years and nine months of age when the agreements were made and had a life expectancy of 3.89 years. Neither agreement made any reference to the other, and the life policy could have been surrendered at any time after its issuance, without regard to the annuity contract. The company would not, however, have issued the life insurance policy had Mrs. Day not also entered into the annuity contract; but she did not make any inquiry as to this fact nor was she informed of it. The company treated separately the premium paid for the life policy and that received for the annuity contract, crediting each to the appropriate account, and so reported to the insurance commissioner. In the years 1935 to 1937 the company issuing the policy earned a little over *8 3.5 per cent on its ledger assets. Mrs. Day died about five and one-half years after the agreements were made, and the amount due on the policy was paid to the children named in it as beneficiaries. They were also named as the residuary legatees in her will. For some years prior to her death, two of them had been receiving financial assistance from her in the form of monthly allowances.
Section 486c of the Cumulative Supplement to the General Statutes, 1935, now amended by 395e of the 1939 Supplement, specifies the transfers of property by will or otherwise which are subject to a succession or transfer tax, including gifts or grants intended to take effect in possession or enjoyment at or after death. Section 487c of the 1935 Supplement states that "The provisions of section 486c shall not apply to the proceeds of any policy of life or accident insurance payable to a named beneficiary or beneficiaries"; but, subject to a certain exception, the proceeds of policies payable to the estate of the insured, or to the executors of his will or administrators of his estate, are taxable. There can be no question that, if regard be had only for the literal provisions of the policy before us, it is a policy of life insurance and its proceeds would be exempt from taxation under this statute.
The tax commissioner claims, however, that if we look beyond the words of the policy to the actual situation the agreement between Mrs. Day and the company will be found to lack the elements essential to a policy of life insurance; and, in support of his contention that the proceeds of the policy are taxable, he cites Helvering v. Le Gierse,
That question is, what intention has the legislature expressed by the use of the words "any policy of life or accident insurance." In attempting to ascertain that intention, we must not seek to ascribe to the General Assembly too great "a subtlety of discrimination." Jewett City Savings Bank v. Board of Equalization,
In Helvering v. Le Gierse, supra, it is said (p. 539) that the essentials of life insurance are risk-shifting and risk-distributing. In such a situation as the one before us, it might be arguable that there is a certain shifting of risk. The beneficiaries named in the policy were Mrs. Day's heirs-at-law and the residuary legatees under her will, and two of them had been receiving monthly allowances from her; and, by the device of the policy, they would presumably receive the money it represented much more promptly than it could come to them through the settlement of her estate. Moreover, through the issuance of the policy, they were saved the risk of loss through poor investments and the like which might deplete the estate of a woman of her advanced years. Such possible benefits accruing from the issuance of the policy are not those commonly incident to insurance policies taken out by a person upon his own life. Moreover, risk-shifting may or may not be present where a person takes out such a policy. It may be made payable to a person or persons who are dependent upon him for support *11
or assistance; but, on the other hand, every man has an insurable interest in his own life and he can make a policy which he takes out upon it payable to whom he will, though no economic loss will come to the beneficiaries by his death. Allen v. Hartford Life Ins. Co.,
We cannot accept risk-shifting as an essential characteristic of life insurance. Professor Vance, at the very beginning of the work last cited (p. 2), as appears in the footnote,1 lists five elements which distinguish *12
a policy of insurance from other similar contracts. The first three, he says, may also be present in other agreements, and, we may add, may not be present, as we have shown, in such policies as the one before us. It is really the last two elements he refers to which essentially distinguish insurance from other somewhat similar transactions. These are that the policy is issued in pursuance of a general scheme to distribute losses among a large group of persons in the same class, and that each person in the class is required to make a ratable contribution to the general fund from which the losses are paid. Ritter v. Mutual Life Ins. Co.,
The effect of the transaction before us, if we regard, as we must, the two agreements before us as parts of a single plan, was that Mrs. Day paid to the insurance company the aggregate sum of $44,000, in return for which it agreed to pay her an annuity of $83.68 each month so long as she lived, and at her death to pay to such beneficiaries as might be named the sum of $40,000. The chance that it would have to pay the amount due upon the insurance policy before the premium paid, with its increment by investment, equalled the face value of the policy was offset by the fact that on her death annuity payments would cease; and the only apparent chance that the company would be called upon to pay out more than it had received would be that its investments did not earn as much as it had anticipated. The possibility that it would have to fall back upon premiums paid by other insured to make up the sums to be paid under the agreements is too remote to characterize the transaction as involving risk-distribution or as amounting to true life insurance. See Old Colony Trust Co. v. Commissioner of Internal Revenue,
The plaintiff suggests that the proceeds of policies of life or accident insurance payable to named beneficiaries are not taxable as a "gift or grant intended to take effect in possession or enjoyment at or after the death of the transferor," altogether apart from the provisions of 487c. That contention undoubtedly accords with the great weight of authority. Note, 150 A. L. R. 1285, 1288. But it does not apply to the transaction before us, which is not one of true life insurance. See Gregg v. Commissioner of Corporations Taxation,
To the first question propounded in the reservation,
Dissenting Opinion
It seems to me that the fair and complete description in the majority opinion of the contracts entered into by the decedent leads inevitably to the conclusion that the proceeds of the policy are excluded by the provisions of 487c from the class of taxable transfers described in 486c. The majority opinion admits that a literal interpretation of the contracts brings about this result. It reaches a contrary conclusion on the ground that the contracts were not entered into in pursuance of a general scheme to distribute losses among a large group of persons in the same class who individually make ratable contributions to the general fund from which losses are paid, emphasizing the annuity feature. It rejects the basic holding of the case of Helvering v. Le Gierse,
The fact, if true, that the decedent was trying to save inheritance taxes is irrelevant. One of the rules of the game of tag always being played by the tax collector and taxpayer is that "A taxpayer is privileged to decrease the amount of what otherwise would be his taxes by means which the law permits." Commissioner of Internal Revenue v. Le Gierse,
No useful purpose would be served by writing a dissent as long as the opinion when the reasons therefore can be given by reference. I rely, as do the dissenters in Helvering v. Le Gierse, supra, on the reasoning of Judge Swan in Commissioner of Internal Revenue v. Le Gierse, supra, and on the excellent brief filed by the plaintiff. The latter is available to Connecticut lawyers. The difference in phraseology between the federal and state acts, the difference in policy with reference to the taxation of insurance and the fact that the federal tax is imposed upon the transfer of property of the decedent while the state succession tax statutes levy an excise upon the beneficiary for the privilege of succession to property, noted therein and not discussed in the majority opinion, are particularly significant.
The results which will follow a decision may be of assistance in determining the legislative intent. Conners v. New Haven,
For the reasons stated, I think the proceeds of the life insurance policy in question are not taxable.
