Federal Estate Tax - Marital Deduction - Annuity for Life with Guaranteed Certain Payments Not Divided Into Two Properties by Insurer's Accounting Treatment

Authors

William S. Bach, University of Michigan Law SchoolFollow

Abstract

Plaintiff, executor of decedent's estate, brought suit to recover an overpayment of federal estate tax. Decedent had purchased a life insurance policy and had elected an option under which proceeds would be paid to his wife in monthly payments for her life; however, the option also guaranteed a minimum of 240 payments. In the event the wife died before 240 payments were made, payments were to continue to decedent's daughter, or on the death of both wife and daughter, the commuted value of the remaining guaranteed payments would be paid in lump sum to the estate of the survivor. The insurers made book entries allocating $17,956.41 of the total proceeds to fund the 240 guaranteed payments- or "annuity certain" - and $7,231.09 to fund the annuity payable to the wife to the extent that she might live longer than 240 months - "contingent life annuity." No division of the proceeds was made by the terms of the policy. The federal estate tax was paid on the value of both the annuity certain and the contingent life annuity. Plaintiff then brought suit for a refund of the tax on the value of the contingent life annuity claiming that the separate accounting treatment of this annuity made it separate property, and that it therefore qualified for the marital deduction since the wife's interest in the contingent annuity was exclusive. The district court accepted this theory, and allowed the refund, but was reversed by the Court of Appeals for the Second Circuit. On certiorari to the United States Supreme Court, held, affirmed, three Justices dissenting. Because separate book entries by the insurer allocating portions of the total insurance proceeds to fund the contingent and certain payments of an annuity are not sufficient to divide this annuity into separate properties, the proceeds constituted one "property" in which the widow had a terminable, and therefore a non-deductible, interest. Meyer v. United States, 364 U.S. 410 (1960).

Recommended Citation

William S. Bach, Federal Estate Tax - Marital Deduction - Annuity for Life with Guaranteed Certain Payments Not Divided Into Two Properties by Insurer's Accounting Treatment, 59 Mich. L. Rev. 971 (1961).
Available at: https://repository.law.umich.edu/mlr/vol59/iss6/10