RESPONDENT: United States
LOCATION: Huntington National Bank
DOCKET NO.: 13
DECIDED BY: Warren Court (1958-1962)
LOWER COURT: United States Court of Appeals for the Second Circuit
CITATION: 364 US 410 (1960)
ARGUED: Oct 12, 1960
DECIDED: Nov 21, 1960
Facts of the case
In 1943, Peter Meyer took out life insurance policies in his own name worth $50,000. He pledged his insurance policies to Huntington National Bank of Columbus, Ohio as collateral security for a loan. This gave the bank the right to satisfy its claim out of the 'net proceeds of the policy when it becomes a claim by death.' After Peter Meyer pledged the policies to the bank, the United States determined that he owed $6,159.09 plus interest in unpaid taxes. The United States filed notice of tax lien on July 11, 1955.
Peter Meyer died on December 28, 1955, owing $26,844.66 to Huntington National Bank. Ethel Meyer, the petitioner and Peter Meyer's widow, was named executrix of his estate and received $441.21, representing the remainder of the full cash surrender from Peter Meyer's insurance policies after payment to the bank.
The United States brought suit against Ethel Meyer under 26 U.S.C.A. 6321 and 6322, arguing that it should be compensated for the full tax lien by marshalling the funds already paid to Huntington National Bank. At trial, Ethel Meyer argued that she owed nothing to the government because she was not personally liable for Peter Meyer's tax lien. She also argued that the tax lien did not and could not attach to the net proceeds of the cash surrender because those proceeds would be exempt under New York Insurance Law.
District court Judge Edmund Palmieri held that the government was entitled to recover the full tax lien through the insurance policy's full cash surrender. The court relied on United States v. Behrens, where the court ordered a defendant to pay both a bank lien and tax lien from the same cash surrender. Although most of Peter Meyer's cash surrender was pledged to the bank for the payment of loans, this did not preclude the government from collecting on its full tax lien first. The U.S. Court of Appeals, Second Circuit, affirmed in a per curiam ruling. The court agreed that Behrens controlled the case.
Can a federal tax lien attach to the net proceeds of life insurance policies paid to Peter Meyer's widow?
Media for Meyer v. United States
Audio Transcription for Oral Argument - October 12, 1960 in Meyer v. United States
Meyer versus United States.
Mr. Day, you may proceed with your argument.
Donald S. Day:
Mr. Chief Justice, may it please the Court.
This is an appeal on a writ of certiorari from a decision of the Circuit Court of Appeals for the Second Circuit, by a divided court, holding that no part of the death proceeds of certain life insurance policies which constitute a part of the insured gross estate for state tax purposes, qualify for the so called marital deduction.
The Circuit Court of Appeals' decision, which reversed a judgment of United States District Court for the Western District of New York in favor of petitioners, was in direct conflict with an earlier decision of the Circuit Court of Appeals of the Third Circuit on the precise question and almost – on almost identical facts.
In the case of Ryle against Commissioner which was decided in January of 1957.
Now at issue in this appeal, is the construction of Section 812 (e) (1), (a) and (b) of the Internal Revenue Code of 1939 is amended by the laws of 1948 and with your permission I would like first to discuss generally this statute before going into the facts of the case.
This Section, which involved the so-called marital deduction, was enacted by Congress in 1948 as part of an overall plan to equalize the impact of the estate taxes upon married persons and community property estates with those in common law estates and I believe that this is the first case in this Court which involves marital deduction.
Now, the equating of the estate tax further was accomplished by Congress allowing the deduction about 50% of the gross estate of the spouse first to die or outright transfers of property to the surviving spouse.
Those assets which were removed from the estate of the spouse first to die are then exposed to death -- to tax upon the death of the surviving spouse.
Now, the purpose of the deduction in a consequent postponement of the tax is to assure that the proper -- that the property of a marital community will be subject to a estate tax only once in the estate of each spouse.
Now in community property estate of course, the surviving spouse's interest in the community property is unrestricted and unqualified.
Therefore, in order to prevent abuses and tax avoidance through the use of a marital deduction, Congress of 1948, when it put into effect the marital deduction law, sought to enact what they call determinable interest rule and which became part of Section 812 (e).
Now, this rule in effect simply accepts from the marital deduction any asset of the estate which is transferred to the spouse and which may by any event ultimately pass from the decedent to any person for less than consideration of money or money's worth and be possessed and enjoyed by such person after the surviving spouse.
The -- with this back on my mind, I would like you to go into the facts for this particular case.
The plaintiffs are the executors under the last will and testament of Albert Meyer who died in Buffalo, New York in 1952.
Now, in filing the estate tax return as part of schedule M, the executors showed as part of the proceeds passing to the surviving spouse, the proceeds of two insurance policies which totaled some $30,000.
These amounts included the proceeds of one insurance policy for Northwestern Mutual Life Insurance Company in the amount of $25,000 and the proceeds from an insurance policy from the John Hancock Mutual Life Insurance Company in the amount of $5,000.
About 12 years prior of his death, the decedent had filed with the insurance companies an election of settlement option and a substantially identical election was made under both of the policies.
In effect, the settlement option provided that upon the death of the insured, the surviving spouse who was named as primary beneficiary, the wife in this case, were to be paid an annual income in monthly payments for a period of 20 years in accordance with the table set forth in the body of the policy and depending upon the age of the surviving spouse at the time of the insured's death.
The election -- the option further provided that in the event that the spouse died after payments begin, but before the expiration of the 20-year period that in that event the payments were to continue to the insured's daughter.
It further provided that in the event that both the insured's spouse and the insured's daughter died within the 20th period then the commuted value of the payments still having of the 20 years service still remaining unpaid would then be paid to the executor or the administrator of the last surviving party involved.
Charles E. Whittaker:
If the wife has lived for 20 years she would've gotten the entire proceeds and development?
Donald S. Day:
No Your Honor, she would not have got that entire proceeds she would have gotten an income for the 20-year period --
Hugo L. Black:
Donald S. Day:
No Your Honor, I want to explain that at this moment.
Upon the death of the insured and upon proof of the age of the spouse her age was 42 at the time, the insurance companies make a calculation and this is the practice of the insurance industry, they use the actuarial tables and on this particular case, they determined by their actuarial tables that of the total proceeds of a Northwestern Mutual Life Insurance policy of $25,000, $18,000 was necessary to fund the life certain of 20 years.
The balance of the policy, $7,000 was necessary to fund the contingent life annuity.
Now the John Hancock Life Insurance Company did exactly the same thing.
They made actuarial computation and according to that computation, they determined that with respect to their policy the face value of which was $5,000, $4,000 was necessary to fund the life certain for 20 years and $1,000 was necessary to fund the contingent life annuity.