Chase National Bank v. United States, 278 U.S. 327 (1929)

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Chase National Bank v. United States

No. 77

Argued November 27, 28, 1928
Decided January 2, 1929
278 U.S. 327

CERTIFICATE FROM THE COURT OF CLAIMS

Syllabus

Section 401 of the Revenue Act of 1921 imposes a tax on "the transfer of the net estate of every decedent" dying after the passage of the Act, and § 402 provides that, in valuing the gross estate from which the net is computed, there shall be included the amount, over an exemption, receivable by beneficiaries as insurance under policies taken out by the decedent upon his own life. After the effective date of the Act, the decedent in this case procured policies on his life payable to others but reserving to himself the right to change beneficiaries, and paid the premiums until his death. The transfer tax assessed under the Act included an amount imposed by reason of the inclusion in his estate of the proceeds of the policies less exemption.

Held:

(1) This part of the tax is not a direct tax on the policies or their proceeds, but is a tax on the privilege of transferring property of a decedent at death. Pp. 333 et seq.

(2) The termination at death of the power of the decedent to change beneficiaries and the consequent passing to the designated beneficiaries of all rights under the policies freed from the possibility of its exercise, is the legitimate subject of a transfer tax. P. 334.

(3) The fact that the proceeds of the policies were not transferred to the beneficiaries from the decedent, but from the insurer, does not make the tax one on property. The word "transfer" in the statute, and the privilege which may constitutionally be taxed as an excise, includes the transfer of property procured through expenditures by the decedent with the purpose, effected by his death, of having it pass to another. P. 337.

(4) In reaching this conclusion, it is of some significance that, by the local law applicable to the insurer and the insured in this case, the beneficiaries’ rights in the policies and their proceeds are deemed to be the proceeds of the premiums paid by the insured, and, as such, recoverable by one having an equitable claim on the premiums. P. 337.

(5) Termination of the power of control at the time of death inures to the benefit of him who owns the property subject to the power, and thus brings about, at death, the completion of that shifting of the economic benefit of property which is the real subject of the tax, just as effectively as would its exercise. P. 338.

(6) The statutory method of fixing the tax and securing its payment is not objectionable, as arbitrary, under the Fifth Amendment even though the tax, both on the beneficiaries of the insurance and on those who share in the decedent’s estate is larger than it would be if the insurance proceeds were dealt with separately in taxing their transfer, instead of being included in the gross estate from which the net estate, subject to graduated tax rates, is determined. P. 338.

Response to questions certified by the Court of Claims in a suit by executors to recover money paid as part of an estate tax.