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MEYER v. UNITED STATES

October 3, 1958

Edward J. MEYER, Marion E. Meyer and Alfred M. Saperston, Executors of the Estate of Albert F. Meyer, Plaintiffs,
v.
UNITED STATES of America, Defendant



The opinion of the court was delivered by: MORGAN

The above entitled action was submitted to this court upon stipulated facts and briefs.

Findings of Fact

1. Plaintiffs are executors of the Estate of Albert F. Meyer, who died September 14, 1952, having received Letters Testamentary as such executors from the Surrogate's Court of Erie County, New York, on October 9, 1952, and presently are acting as such executors.

 2. This action arises under the Internal Revenue Code of the United States as amended.

 3. On December 9, 1953, the executors filed the Federal Estate return with the District Director of Internal Revenue in Buffalo, New York, showing a tax due in the sum of $ 16,770. The return was audited and the Director determined a deficiency in the amount of $ 8,500.48, with interest from December 14, 1953, in the amount of $ 361.25, making a total assessment of $ 8,861.73, which was paid as follows: $ 8,500.48 on August 31, 1954, and $ 361.25 on October 26, 1954.

 4. The total gross estate reported by plaintiffs on said federal estate tax return amounted to $ 313,764.46. Included in Schedule M of the estate tax return, as part of the property passing to the surviving spouse, were the proceeds of two insurance policies totaling $ 30,207.10. This amount included the proceeds from an insurance policy on decedent's life issued by Northwestern Mutual Life Insurance Company, Policy No. 3212835 (originally identified as Policy No. 3056279), payable to Marion E. Meyer, wife of decedent, in the amount of $ 25,187.50, and the proceeds of an insurance policy on decedent's life issued by John Hancock Mutual Life Insurance Company, Policy No. 2035894, payable to Marion E. Meyer in the amount of $ 5,019.60. Proceeds of these policies were included in the gross estate as items 3 and 8, respectively, of Schedule D of the estate tax return.

 5. The decedent filed a Nomination of Beneficiary and Election of Settlement Option dated December 4, 1940, for each of the above mentioned policies. The settlement option for the John Hancock policy, hereinafter referred to as option 3, provided for the payment of the proceeds of the policy in 20 annual installments in equivalent monthly payments to decedent's wife, Marion E. Meyer, if living, and thereafter during her life-time but, if the decedent's wife was not living at his death, the installments were to be paid to the decedent's daughter, Shirley A. Meyer, in the same manner. In the event of the death of said wife after becoming entitled to payment and before payment in full of said 20 annual installments, any of the said 20 installments or monthly portions thereof then remaining unpaid, were to be paid, as they became payable, to said daughter. In the event of the death of the last survivor of the insured, his said wife and his said daughter, before payment in full, the amount payable, or the commuted amount of any of said 20 installments or monthly portions thereof then remaining unpaid, were to be paid in one sum to the executors or administrators of such last survivor. The settlement option for the Northwestern policy, hereinafter referred to as Option C, provided for the payment of the proceeds of the policy in 240 stipulated monthly installments to Marion E. Meyer, wife of the insured. However, in the event of the death of Marion E. Meyer while receiving settlement under Option C, the insured's daughter, Shirley A. Meyer, was to receive payment under such option in accordance with its terms as to the stipulated installments remaining unpaid, if any. Each option was in effect at decedent's death.

 6. Decedent was survived by his wife, Marion E. Meyer, and his daughter, Shirley A. Meyer. At the time of Albert Meyer's death, the age of Marion E. Meyer, his surviving wife, to her nearest birthday was 42.

 7. On the basis of the calculations used by the Northwestern Mutual Life Insurance Company to determine the amount of the monthly installments in the amount of $ 25,187.50, the sum of $ 17,956.41 was necessary to provide the monthly income in the amount of $ 94.71 for 20 years certain, and $ 7,231.09 was required to provide a monthly income thereafter for the life of the surviving spouse.

 8. On the basis of the calculations used by the John Hancock Mutual Life Insurance Company to determine the amount of the monthly installments of the total proceeds in the amount of $ 5,019.60, the sum of $ 4,012.24 was necessary to provide monthly income for 20 years certain, and $ 1,007.36 was required to provide the monthly income thereafter for the life of the surviving spouse.

 9. The Northwestern and John Hancock policies provide that benefits accruing under the settlement option and policy of insurance shall not be transferable, nor subject to commutation or encumbrances, nor to legal process, except in an action to recover of necessaries.

 10. Neither of the above referred to policies provides, and the decedent did not request, that there be any segregation of the proceeds of the policy between the amounts computable for the term certain and the amounts computable for the funding of the contingent life annuity. Both of the policies provide that the policy and the application therefor constitute the entire contract between the parties.

 11. There is no dispute that the $ 17,956.41 computed as the amount required under the policy of insurance issued by the Northwestern Mutual Life Insurance Company to provide monthly payments during the 20 years certain period and the $ 4,012.24 computed as the amount required under the policy of insurance issued by the John Hancock Mutual Life Insurance Company to provide monthly payments during the 20 years certain period are nondeductible 'terminable interests' within the meaning of Section 812(e)(1)(B) of the Internal Revenue Code of 1939, and no claim is made for allowance of the marital deduction with respect to such amounts.

 12. A claim for refund of estate taxes in the amount of $ 2,339.72, alleged by the plaintiffs to have been overpaid, was filed by the plaintiffs in the office of the District Director of Internal Revenue at Buffalo, New York, on April 26, 1957. Said claim was based upon the contention that the amount of $ 8,238.45, consisting of portions of each of the two life insurance policies referred to above and taken out by the decedent on his own life and computed by the insurance companies for the funding ...


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