Bingham v. United States

Background

King Upton died in 1921 leaving several life insurance policies that had been issued long before the 1918 Revenue Act. Four Berkshire policies had originally been payable to his estate and were assigned in 1904 to his wife “provided she survives me.” One Connecticut Mutual policy was payable to his wife, with a condition that if she predeceased him the proceeds would go to his children or legal representatives. The assignments left the insured with no power to change beneficiaries, pledge, assign, or surrender the policies without the beneficiaries’ consent. After subtracting a $40,000 exemption, the Commissioner included these proceeds in the gross estate and the executors sued to recover the tax.

Reasoning

The central question was whether the Revenue Act’s §402(f) required including these policy proceeds in the decedent’s taxable estate. The Court relied on an earlier decision (Lewellyn v. Frick) and recent tax cases, concluding that the terms of the policies and assignments fixed title and possession in the beneficiaries long before the Act was passed. Because the insured had no power to alter those rights, no new interest passed at death; the wife’s or other beneficiaries’ entitlement existed before the statute took effect. For those reasons the Court sided with the taxpayers and reversed the court of appeals.

Real world impact

The decision means that life insurance proceeds given away under binding assignments before the 1918 law were not taxable as part of this decedent’s estate. Executors and beneficiaries in similar factual situations can rely on the rule that irrevocable, long-standing assignments keep proceeds outside the gross estate, while the Treasury cannot tax those amounts in these circumstances.