The question here is whether the proceeds of certain contracts payable upon the death of the decedent to his wife are includible in his gross estate for estate tax purposes under Section 302(c) of the Revenue Act of 1926, as amended, Internal Revenue Code § 811(c), 26 U.S.C.A. Int.Rev.Code, § 811(c).
On June 29, 1933, the Equitable Life Assurance Society of the United States issued two contracts for which the decedent paid sums aggregating $26,500:
(1) The first contract, for which the decedent paid a single premium of $14,357.08, insured the decedent's life for $18,928, payable upon death to his wife or, if she predeceased him, to their daughters. If all the beneficiaries predeceased the decedent, the proceeds of the contract were to be paid to his executors or administrators. In lieu of a physical examination in connection with the issuance of this contract, decedent was required to purchase a second or an annuity contract.
(2) Under the annuity contract, the decedent paid a single premium of $12,142.92. The contract provided for semi-annual payments of $386.51 to be made to the decedent during his lifetime and for payment of $6,071.46 to his wife upon his death or, if she predeceased him, to their daughters or, if they were dead, to his estate.
By the terms of each contract the wife had the unrestricted right to assign it, to borrow money on it, to receive dividends, to change the beneficiaries and to surrender the contract and obtain the surrender value thereof. The contracts designated her as the 'Owner' or 'Purchaser,' the decedent be ng called the 'Insured' or 'Annuitant.' In the event that the wife should predecease the decedent, the contracts provided that all of the enumerated powers were to vest in the decedent to the extent that such powers had not otherwise been exercised by the wife.
The decedent was 63 years old when the contracts were issued. He died nearly five years later, on February 23, 1938, survived by his wife and daughters. His wife had not surrendered, assigned or alienated either contract prior to his death. The Equitable Life Assurance Society thereupon paid the widow $6,071.46 under the annuity contract, $18,928 under the life contract and $182.24 as accumulated dividends, making a total of $25,181.70.
On these facts the Commissioner of Internal Revenue determined that the Proceeds of the two contracts were includible in decedent's estate for estate tax purposes. The petitioners, as executors of the estate, were assessed a deficiency of $5,376.11. After paying that amount they filed a claim for refund. The claim was rejected. They then brought this suit for refund. The District Court sustained the action of the Commissioner and dismissed the complaint. 52 F.Supp. 704. The Second Circuit Court of Appeals affirmed this judgment. 144 F.2d 373. An apparent conflict of authority among lower courts on the question presented led us to grant certiorari. 324 U.S. 833, 65 S.Ct. 675.
Helvering v. Le Gierse, 312 U.S. 531, 61 S.Ct. 646, 85 L.Ed. 996, makes it plain that these two contracts, which must be considered together, contain none of the true elements of insurance risk. Section 302(g) of the Act, 26 U.S.C.A. Int.Rev.Code, § 811(g), relating to amounts receivable 'as insurance under policies taken out by the decedent upon his own life,' is therefore inapplicable. The sole question, then, is whether the proceeds of the contracts are includible in the decedent's gross estate under Section 302(c) as the subject of a transfer intended to take effect in possession or enjoyment at or after the decedent's death. That question we answer in the affirmative.
Section 302(c), as demonstrated by Helvering v. Hallock, 309 U.S. 106, 60 S.Ct. 444, 84 L.Ed. 604, 125 A.L.R. 1368, reaches all inter vivos transfers which may be resorted to, as a substitute for a will, in making dispositions of property operative at death. It thus sweeps into the gross estate all property the ultimate possession or enjoyment of which is held in suspense until the moment of the decedent's death or thereafter. Fidelity-Philadelphia Trust Co. v. Rothensies, 324 U.S. 108, 111, 65 S.Ct. 508, 510. In so doing, Section 302(c) pierces all the verbiage of 'unwitty diversities of the law of property.' Helvering v. Hallock, supra, 309 U.S. 118, 60 S.Ct. 450, 84 L.Ed. 604, 125 A.L.R. 1368. Testamentary dispositions of an inter vivos nature cannot escape the force of this section by hiding behind legal niceties contained in devices and forms created by conveyancers.