Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 54-29

1954-1 C.B. 186

IRS Headnote

Proceeds of insurance policies on decedent's life payable to his former wife under an agreement which was by its express terms to become effective only upon approval by the court in pending divorce proceedings, are not includible in decedent's gross estate where the agreement was ratified and approved by the court and made a part of the divorce decree by reference.

Full Text

Rev. Rul. 54-29

Advice is requested whether the interest of the decedent's former wife in the proceeds of insurance policies on the decedent's life is includible in his gross estate for Federal estate tax purposes.

The decedent and his wife, residents of Alabama, entered into a property settlement agreement in contemplation of a divorce. The agreement provided that the decedent should pay his wife a certain sum monthly for her maintenance and support until her death or remarriage or the decedent's death, whichever event should first occur. The agreement further provided that the decedent should maintain and keep in full force and effect certain life insurance policies on his life payable to his wife in the form of an annuity. The agreement expressly provided that it should not become effective unless approved by the court in the divorce proceedings and, if so approved, it should be incorporated in and made a part of the decree of divorce. In the decree of absolute divorce, the agreement was ratified and confirmed and made a part of the decree by reference.

Section 811(g)(2) of the Internal Revenue Code, relating to the includibility of the proceeds of life insurance in the insured's gross estate, provides in part as follows:

(2) RECEIVABLE BY OTHER BENEFICIARIES.-To the extent of the amount receivable by all other beneficiaries as insurance under policies upon the life of the decedent (A) purchased with premiums, or other consideration, paid directly or indirectly by the decedent, in proportion that the amount so paid by the decedent bears to the total premiums paid for the insurance, or (B) with respect to which the decedent possessed at his death any of the incidents of ownership, exercisable either alone or in conjunction with any other person. * * *

Section 811(g)(3) of the Internal Revenue Code provides at follows:

(3) TRANSFER NOT A GIFT.-The amount receivable under a policy of insurance transferred, by assignment or otherwise, by the decedent shall not be includible under paragraph (2)(A) if the transfer did not constitute a gift, in whole or in part, under Chapter 4, or, in case the transfer was made at a time when Chapter 4 was not in effect, would not have constituted a gift, in whole or in part, under such chapter had it been in effect at such time.

In Cornelia Harris v. Commissioner , 340 U.S. 106, Ct. D. 1937, C.B. 1950-2, 77, it was held that where a property settlement agreement entered into in contemplation of divorce was to become effective only upon its approval by the divorce court and such agreement was ratified and approved by the court, the divorced wife acquired her property interest by the court decree and not by way of a transfer from her husband.

The agreement in this case, as in the Harris case, supra , was not to become binding upon either party unless approved by the court in the decree of divorce. In this case, under Alabama law, the wife acquired at the time of the divorce an absolute interest in the annuity payments provided in the insurance policies and the court had under Alabama law authority to decree such payments. Accordingly, to the extent receivable by the decedent's divorced wife, the insurance proceeds are not includible in the decedent's gross estate under section 811(g)(2)(A) of the Internal Revenue Code (premium payment test) as she did not acquire her interest in the proceeds by way of transfer which would constitute a gift under chapter 4 of the Internal Revenue Code; nor, to the extent receivable by the divorced wife, are the proceeds includible under section 811(g)(2)(B) (incidents of ownership test) as the decedent did not possess any incidents of ownership in the policies at the time of his death.

In view of the foregoing it is held that proceeds of insurance policies on decedent's life payable to his former wife under an agreement which was by its express terms to become effective only upon approval by the court in pending divorce proceedings, are not includible in decedent's gross estate where the agreement was ratified and approved by the court and made a part of the divorce decree by reference.