Rev. Rul. 83-44

1983-1 C.B. 228, 1983-11 I.R.B. 6.

                       Internal Revenue Service
                                 Revenue Ruling

                GROSS ESTATE;  NO-FAULT INSURANCE DEATH BENEFITS

                           Published: March 14, 1983

SECTION 2042. - -PROCEEDS OF LIFE INSURANCE, 26 CFR 20.2042-1: Proceeds of life insurance

(Also Section 2033; 20.2033-1.)

  Gross estate;  no-fault insurance death benefits.  The value of no-fault insurance death benefits payable to the executor of a deceased driver or of a deceased passenger is includible in the decedent's gross estate under section 2042 of the Code.

ISSUE

  Is the value of death benefits receivable under a policy issued pursuant to State Y's no-fault insurance statute by the executor of D, the operator of the insured vehicle, and C, a passenger in the vehicle, includible in the respective gross estates of D and C under section 2042 of the Internal Revenue Code?

FACTS

  D, a resident of State Y, died as a result of an injury incurred when the automobile that D owned and was driving was involved in a collision.  C, a passenger in the automobile, died in the collision.  Under State Y's no-fault motor vehicle insurance statute, an owner of a motor vehicle registered in State Y must carry no-fault insurance or maintain another form of financial security, such as a cash bond, for the payment of benefits specified in the statute.  If the no-fault insurance is cancelled and no other satisfactory financial security is provided, the owner must relinquish the motor vehicle registration and cease to drive the vehicle.

  D carried the required no-fault insurance policy.  The policy provided for the payment of up to 50x dollars as a "basic economic loss benefit" covering D' § medical expenses and loss of income arising from D's injury while operating the insured vehicle.  In addition, in the event of D's accidental death while operating the insured vehicle, a 10x dollar "death benefit" was paid to D's estate.  The policy also provided that a "death benefit" of 10x dollars was to be paid to the estate of any passenger killed in the insured vehicle.  Payment of the death benefit did not preclude the recipient estates, or heirs of the decedents, from pursuing any right of action for additional damages arising on account of the accident.  D's estate and C's estate each received a 10x dollar death benefit payment under the policy, and 20x dollars was paid to D's estate as a basic economic loss benefit covering D's medical expenses incurred as a result of the accident.

LAW AND ANALYSIS

  Section 2042(1) of the Code provides that the gross estate includes the proceeds of insurance receivable by the executor under policies on the life of the decedent.  Section 20.2042-1(a)(1) of the Estate Tax Regulations provides that the term "insurance" refers to life insurance of every description, including death benefits paid by fraternal beneficial societies operating under the lodge system.

  In Helvering v. Le Gierse, 312 U.S. 531.  (1941), 1941-1 C.B. 430, the Court, in defining what constitutes life insurance for purposes of the predecessor of section 2042 of the Code, stated that the essential elements of life insurance are risk-shifting and risk-distributing in the event of loss because of death. See also Commissioner v. Treganowan, 183 F.2d 288 (2d Cir. 1950).

  In Rev. Rul. 57-54, 1957-1 C.B. 298, an airplane owner carried insurance which provided for payments to passengers or their representatives in the event of accidental death.  The ruling holds that the payments made to a decedent's estate are not life insurance proceeds under section 2042 of the Code even though they are paid without regard to the legal liability of the insured because, under the facts of the ruling, the proceeds were payable only if the insured were released from liability by those persons having a cause of action arising out of the accident.  The ruling holds that payments are includible under section 2042 if an insurer unconditionally agrees to make payments in the event of the insured's death and the executor accepts the payments.

  In Rev. Rul. 68-88, 1968-1 C.B. 397, amounts were payable under an uninsured motorists endorsement in an automobile liability policy.   This endorsement provided that the insurer would pay to a deceased insured's estate all amounts which the insured's estate would have been legally entitled to recover as damages from the operator of an uninsured automobile in an action for wrongful death.  The ruling holds that the payments originated under the state's wrongful death statute since, after payment of the claim, the decedent's executor was foreclosed from instituting a wrongful death action and the insurer became subrogated to the rights of the insured against the uninsured motorist.  Thus, in that situation, the payments were not life insurance proceeds for purposes of section 2042 of the Code.

  In this case, the no-fault insurance policy purchased by D is a contract under which D shifted the risk of deaths to the insurer, and the insurer distributed the risk of loss among those participating in the no-fault insurance program.  The payment of death benefit to D's executors is conditioned only upon D's loss of life and is not a substitute for a wrongful death suit.  The death benefit, which is payable regardless of the existence of a wrongful death claim, flows from the insurance policy and is similar to the unconditional payment discussed in Rev. Rul. 57-54, cited above.  Consequently, the death benefit payable under the policy to D's executor is proceeds of insurance on the life of D.  Since the proceeds are payable to the executor, the proceeds are includible in D's gross estate under section 2042(1) of the Code.

  Similarly, the death benefit payable to C's executor also represents the proceeds of insurance on the life of C, includible in C's gross estate under section 2042(1) of the Code.   See Rev. Rul. 57-54, cited above.

  The basic economic loss benefit of 20x dollars was paid to D's estate to cover medical expenses incurred by D, and not on account of D's loss of life. Consequently, the 20x dollars is not includible in D's gross estate under section 2042(1) of the Code.  However, the benefit is includible under section 2033 of the Code.  See Rev. Rul. 75-127, 1975-1 C.B. 297.

HOLDING

  The value of death benefits receivable under a policy issued pursuant to State Y's no-fault insurance statute by the executors of D, the operator of the insured vehicle, and C, a passenger in the vehicle, is includible in the respective gross estates of D and C under section 2042(1) of the Code.

Rev. Rul. 83-44, 1983-1 C.B. 228, 1983-11 I.R.B. 6.