Internal Revenue Service
Revenue Ruling
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smRev. Rul. 65-69
1965-1 C.B. 440
IRS Headnote
The proceeds of the life insurance portion of single-premium life insurance policy and life annuity contract combinations are not includible in the gross estate of the insured as a transfer with income retained where such proceeds are payable to named beneficiaries and together with all rights under the insurance policy have been irrevocably and completely assigned by the insured.
Revenue Ruling 54-552, C.B. 1954-2, 284, modified.
Full Text
Rev. Rul. 65-69
In view of the decision of the Supreme Court of the United States in Fidelity-Philadelphia Trust Co., et al., Executors (Will of Mary H. Haines) v. Smith , 356 U.S. 274 (1958), Ct. D. 1824, C.B. 1958-1, 557, Revenue Ruling 54-552, C.B. 1954-2, 284, has been reconsidered.
Revenue Ruling 54-552 holds that where a decedent purchased a single-premium life insurance policy in combination with a life annuity contract and immediately assigned the insurance policy to the beneficiaries thereof, as beneficiary of the annuity contract he retained possession and enjoyment of the insurance policy during his life within the meaning of section 811(c)(1)(B) of the Internal Revenue Code of 1939 (section 2036 of the Internal Revenue Code of 1954) and that therefore, the proceeds of the policy are includible in his gross estate for Federal estate tax purposes. In support of that position the Revenue Ruling cited the cases of Estate of Walter G. Burr v. Commissioner of Internal Revenue , 156 Fed.(2d) 871, (1946) certiorari denied, 329 U.S. 785, (1946) and Estate of Eustace E. Conway v. Glenn , 193 Fed.(2d) 965, (1952) which relied on the decision of the Supreme Court of the United States in the case of Helvering v. Edyth Le Gierse , 312 U.S. 531, (1941) Ct. D. 1491, C.B. 1941-1, 430.
In the Le Gierse case the Court noted that, although the life insurance policy and the life annuity contract there considered were in all formal respects treated as distinct transactions, the `insurance' policy would not have been issued without the annuity contract, and the two must be considered together. So considered, they failed to spell out any element of insurance risk. It was held that the contracts did not constitute insurance but an investment program and that the amounts thus received by the beneficiary of the policy were taxable as a transfer to take effect in possession or enjoyment at or after death.
In the Fidelity-Philadelphia Turst Co. case, the Court considered the question of the includibility in the gross estate of the decedent of the proceeds of the life insurance portion of single-premium life insurance and annuity policy combinations, where such proceeds are payable to named beneficiaries and have been irrevocably assigned by the insured. The Court, while continuing to approve the decision in the Le Gierse case, held that such proceeds were not includible in the gross estate of the insured under section 811(c)(1)(B) of the 1939 Code, pointing out that the payment of annuities was not conditioned upon the continued existence of the life insurance portion of the contract and that the Commissioner of Internal Revenue could not, by aggregating the two policies into one investment, conclude that receipts of the annuities by the insured constituted retention of income from the life insurance portions.
The Court distinguished the Le Gierse case on the grounds that there the insured had retained the rights and benefits of the insurance policy until death, whereas in the Fidelity-Philadelphia Trust Co. case, the decedent prior to her death, had divested herself of all interests in the insurance policies, including the possibility that the funds would return to her or her estate if the beneficiaries predeceased her. The assignees became the `owners' of the policies before her death; they had received the right to the immediate and unlimited use of the policies to the fullest extent of their worth.
Accordingly, it is held that the proceeds of the life insurance portion of single-premium life insurance policy and life annuity contract combinations are not includible in the gross estate of the insured under section 2036(a) of the 1954 Code or section 811(c)(1)(B) of the 1939 Code as a transfer with income retained where such proceeds are payable to named beneficiaries and together with all rights under the insurance policy have been irrevocably and completely assigned by the insured.
Revenue Ruling 54-552, C.B. 1954-2, 284, is hereby modified to remove the conclusion that in all cases, such as in the Fidelity-Philadelphia Trust Company case, where the decedent was divested of all interest in the insurance policy, the proceeds of the insurance policy are includible in the gross estate of the insured as a transfer with income retained.