Decedent, aged seventy-six, invested in three single premium life insurance policies. Issuance of each was conditioned on the purchase of a single life, nonrefundable annuity of specified value, and no physical examination was required. Each combination was balanced so that the total premium, exclusive of loading charges, equalled the face value of the insurance. The resulting correlation between compound interest and annuity disbursements made the guaranteed payments to the annuitant correspond precisely with the expected income of a reinvestment of the entire deposit by the insurer. Decedent retained the annuity rights, but all present and future interests in the life policies were transferred to her children and the plaintiff-executor eight years prior to her death. The Commissioner contended that the insurance proceeds were subject to an estate tax under I.R.C., section 2036, which includes in the gross estate the value of any property of which decedent has at any time made a transfer for less than a full and adequate consideration "under which he has retained for life . . . (i) the possession or enjoyment of, or the right to income from, the property .... " This contention was rejected by the district court but accepted by the Court of Appeals for the Third Circuit. On appeal to the United States Supreme Court, held, reversed, three justices dissenting. Although each combination was the product of a single, integrated transaction, · the contracts were from the time of issuance separate and distinct and decedent could not, therefore, be said to have retained a life interest in the transferred property. Fidelity-Philadelphia Trust Co. v. Smith, 356 U.S. 274 (1958).
John B. Schwemm S.Ed.,
Taxation - Federal Estate Tax - Insurance and Annuity Combinations,
Mich. L. Rev.
Available at: https://repository.law.umich.edu/mlr/vol56/iss8/11