Industrial Trust Co. v. United States

Background

Executors of William M. Greene’s estate filed an estate tax return and paid the tax shown. They omitted a paid-up life insurance policy worth $42,000 from the return. The Commissioner included that policy amount in the decedent’s gross estate, assessed a deficiency, and denied the executors’ refund claim. The executors sued in the Court of Claims to recover the tax, and that court dismissed their claim.

Reasoning

The main question was whether the money payable to Greene’s children from a long-standing paid-up policy should be taxed as part of his federal estate under the Revenue Act of 1926. The Court described the policy: issued in 1892, made paid-up in 1912, with no power to change beneficiaries, borrow on it, or surrender it, and with proceeds paid to surviving children after the wife predeceased Greene. The opinion noted that treating such beneficiary receipts as transfers under §302(g) (and the Act’s broad subdivision (h)) raises serious constitutional doubts, applied the rule from Lewellyn v. Frick, and relied on the decision in Bingham v. United States. For those reasons, the Court reversed the Court of Claims’ judgment.

Real world impact

The reversal overturns the lower court’s denial and permits the executors to recover the tax at issue instead of having the paid-up policy counted in the gross estate. The opinion signals that applying the 1926 Act to include similar beneficiary receipts is debatable and may face constitutional problems, so estates with nonassignable paid-up policies may avoid inclusion of those proceeds in federal estate tax calculations.