Meyer v. United States

PETITIONER:Meyer
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 onUnited 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 aper curiam ruling. The court agreed that Behrens controlled the case.

Question

Can a federal tax lien attach to the net proceeds of life insurance policies paid to Peter Meyer’s widow?

Earl Warren:

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:

(Inaudible)

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.

Donald S. Day:

So, in answer to your question Mr. Justice, the entire proceeds of the policy would not depending (Voice Overlap) for 20 years.

Charles E. Whittaker:

But if the life of — had live in 20 years who would’ve gotten may continue the part?

Donald S. Day:

The — the — I did not get to that Mr. Justice.

The answer to that question is this.

Charles E. Whittaker:

(Inaudible)

Donald S. Day:

The options further provided that in the event that the wife lived beyond 20-year-period that she continue to receive a monthly income in the same amount which she had received during the prior 20 years and it was for the purpose of funding that contingent life annuity that the insurance companies set aside the $7,000 in the case of the North Western Policy and the $1,000 in the case of the John Hancock Policy.

Now, —

Charles E. Whittaker:

(Inaudible) the death of the primary (Inaudible)?

Donald S. Day:

If the death of the primary beneficiary of the period of the expiration of 20 years then actually with respect to the Northwestern policy only $17,000 of the $25,000 death proceeds of that policy would’ve been used and the insurance company would have put in their pocket the balance of the $8,000.

Charles E. Whittaker:

Beneficiary could all be —

Donald S. Day:

I beg your pardon?

Charles E. Whittaker:

The Beneficiary could all be free?

Donald S. Day:

The beneficiary could be all free, that’s correct.

Now, the estate tax return was filed I believe in 1954 and the estate tax was paid.

And in the 1957 within the period of the statute of limitations a claim for refund was made with the district director of Internal Revenue.

And the claim was made on this basis, and it was made on the basis frankly of the decision which was rendered by the Circuit Court of Appeals of the Third Circuit in Ryle decision which had been handed down in January of 1957 which as I stated involved these identical facts.

The — we recognize in the statement that certainly would respect to that part of the proceeds of the life insurance policy which was necessary to fund the 20 years certain term those parts of the proceeds did not qualify for the marital deduction because someone else other than the spouse had an interest in the proceeds namely the daughter.

In other words, if the wife had died on the 15th year the payment would have continued to the daughter for a period of five years if she had survived.

So, with respect to that, we recognize that part of the proceeds that the terminable interest rule as set forth in Section 812 does disqualify that from the marital deduction.

But the claim for refund was based on the complaint that the balance of the proceeds of these policies namely the $7,000 which the Northwestern Mutual Life Insurance Company had determined was necessary to fund the contingent life annuity, and the $1,000 as computed by the John Hancock Life Insurance Company on their policy, that part of the proceeds of the policy did qualify for the marital deduction because no one else other than the surviving spouse had any interest whatsoever in that property except the insurance company which had obtained it for a consideration in money or money’s worth because after all this was (Inaudible) transaction between the insured in the insurance company.

The daughter was not a contingent beneficiary with respect to that part of the proceeds of the policy.

Now, the claim was disallowed, suit was instituted in the United States District Court and District Court ruled in favor of the taxpayer.

As I stated appeal was taken to the Circuit Court of Appeals for the Second Circuit and divided court at two to one decision, the District Court decision was reversed and we petitioned for writ of certiorari which brings us here.

Now, the search in itself for statute, we have set forth in page 14 of the brief the determinable interest rule as specifically stated in Section 812 (e) (1), (b) (1) and (2) and it reads whereupon the lapse of time or upon the occurrence of an event of contingency or upon the failure of an event of contingency to occur such interest passing to the surviving spouse will terminate or fail, no deduction shall be allowed in respect to such interest.

If an interest in such property passes or has passed for less than inadequate both consideration in money or money’s worth from the decedent to any person other than such surviving spouse or the estate of that person and if by reason of such passing such person or his assigns may possess or enjoy any part of such property after such termination or failure of the interest so passing to the surviving spouse.

Now, this simply means that we believe that under no circumstances may any person succeed to the property in which the surviving spouse has an interest if that property is to qualify for the marital deduction.

We take the position on this appeal as we have taken in the lower courts that the proceeds of this life insurance policy are susceptible and should be construed as in effect creating two problems one, with respect to Northwestern Policy that property which is necessary to fund the life certain for 20 years and also with respect to that policy, the balance of the proceeds namely $7,000 which is necessary to fund the contingent life annuity in whom no one else has an interest other than the surviving spouse.

We believe that the purpose of marital deduction statute would be accomplished by this interpretation of the Section.

John M. Harlan II:

Were these funding provisions spelled out in the cost?

Donald S. Day:

Well, if there is no one no requirement in the policy that the — that there be a segregation; there’s no contractual obligation specifically set out in the policy that there be a segregation of the proceeds.

Donald S. Day:

However, the settlement option of course does refer to the table in the policy and it is specifically set out of course that the payments are dependent upon the age of the surviving spouse at the time of the decedent.

Now, we take the position that simply because both of these properties have a genesis in the same contract that they must not necessarily be regarded as one property but for the purposes of the marital deduction rule maybe considered as two properties one of which only the spouse has an interest.

Now what will be the result of this interpretation?

Well, it will simply mean this; it will simply mean that this surviving spouse will not be taxed on a contingency, on an expectancy because if the proceeds of these two policies which are necessary only to fund the contingent life annuity are included in the gross estate and no deduction is given to them under the marital deduction process then the gross estate is for tax solely on an expectancy because the woman — because the surviving spouse may not live out for 20 years.

It will mean therefore that the only benefit which the surviving spouse will obtain and we suggest that this is the benefit which Congress intended to give to all taxpayers in common law state is that of postponement.

In other words, if the wife does live more than a 20-year-period, then the proceeds of that part of the policy necessary to fund the contingent life annuity as it was received by her and becomes part of her taxable state well it is true be subject to the estate tax and all of them will be taxed.

Now, I don’t believe that the Government seriously contests the argument that if the policy specifically provided for the separation of these two different parts of the proceeds of the life insurance policy that that part necessary to fund the contingent life annuity would not qualify for the marital deduction.

I think the essence of their argument — as a matter of fact Judge Waterman who wrote the dissent from the Circuit Court of Appeals stated that he was quite sure that the — that the majority of the Court would have agreed with him that if that happened and if there was that provision in the context that the Circuit Court of Appeals in its majority decision would have ruled otherwise.

While the policy —

Hugo L. Black:

(Inaudible)?

Donald S. Day:

For the actual segregation.

Hugo L. Black:

(Inaudible)

Donald S. Day:

There was a segregation on the books of the insurance company —

William O. Douglas:

It’s not here.

It wasn’t here, wasn’t it?

Donald S. Day:

Yes sir, yes there is Your Honor.

William O. Douglas:

So the only thing lacking is the provision to that effect?

Donald S. Day:

I believe there is Your Honor, there’s a lacking of provision for that, there is lacking also of the — it would be very truthful of the fact that the insurance company I believe is probably comingles for these facts.

John M. Harlan II:

They don’t say that decides in actual (Inaudible)?

Donald S. Day:

They said is the bookkeeping factors of the insurance companies it is the actuary of practice I believe of the entire insurance industry with respect to all policies of this claim.

Charles E. Whittaker:

Even that this provision they would have said apart, was it?

Donald S. Day:

I don’t believe that would have Your Honor.

I believe they still would’ve been coming.

Charles E. Whittaker:

(Inaudible)

Donald S. Day:

There, in effect is what the Circuit Court of Appeals ruled Your Honor.

That is the only argument between the Circuit Court of Appeals for the Second Circuit and the Circuit Court of Appeals for Third Circuit.

The Circuit Court of Appeals to the Third Circuit said by unanimous court there were two properties here which were created upon the occurrence of the death of the insured.

His death gave rise to the creation of two properties.

We see that with respect to one of these two properties that there is an interest with somebody else other than the spouse can get.

Charles E. Whittaker:

(Inaudible)

Donald S. Day:

Well, we believe Your Honor that the term “property” is used by Congress in the enactment of the marital deduction section should be liberally construed.

We recognize that there is a difference between interest and between properties.

We recognize that certainly an interest maybe only part of a property.

We recognize that with respect to the amount that I am talking about namely that part which is necessary to fund the contingent annuity, there are two interests in that property.

There is an interest of the wife obviously and there is an interest of the insurance company too, but the insurance company’s interest is one which was received for a consideration in money or money’s worth because again, if the wife lives only 25 years then part of the $7,000 for example on the Northwestern Mutual Policy will go back in the pocket of the Northwestern Mutual Life Insurance Company.

So, —

Charles E. Whittaker:

Is there (Inaudible)?

Donald S. Day:

That may — I think probably Your Honor that the question was called to the attention of the file upon the realization of the — of this practice when the Circuit Court of Appeals for the Third Circuit rendered its decision in the Ryder case, I’m willing to recognize that.

Charles E. Whittaker:

(Inaudible)

Donald S. Day:

But I think —

Charles E. Whittaker:

But truthfully what was embodying in prior (Inaudible)?

Donald S. Day:

Well, I think this Your Honor —

Charles E. Whittaker:

(Inaudible)?

Donald S. Day:

No, I don’t think it’s quite that Your Honor.

I think that there is a recognition here and I think there is no question about it that the insurance company in effect must make this calculation because the insurance company must know what proceeds are to be paid to the daughter for example if the wife begins to receive the payments and died before the expiration of the 20-year period.

The insurance company must know what part of the death proceeds of the policy to be paid to the estate of the daughter or the state of the spouse.

Charles E. Whittaker:

Your answer is not the practical of insurance company but that is been held (Inaudible).

Donald S. Day:

I think that so Your Honor.

I speak with all frankness when I say that while it is inherent in the arrangement perhaps more practitioners were not aware of the precise point until this particular case came up.

But I do think that it is inherent in the arrangement and I think that this was a contractual obligation which was entered into between the insured and the insurance company and while it was not specifically spelled out I think the insurance company is under an obligation to make this division of the properties.

Now, —

Potter Stewart:

In order — in other words, to keep promises that were specifically spelled out they had to do what they did here?

Donald S. Day:

Well, that’s precisely our point.

Charles E. Whittaker:

(Inaudible)

Donald S. Day:

Or in there but frankly the practice of the industry is to do what on the box that (Voice Overlap) —

Charles E. Whittaker:

Well, I didn’t understand that, you told that it was different.

It doesn’t turn on the (Inaudible)?

Donald S. Day:

Yes Your Honor, we take the position that the insured actually bargained for this, that he could have elected another option but this is the option that he do.

Charles E. Whittaker:

(Voice Overlap)

Donald S. Day:

I think this carries up precisely the intent of the insured when he elected this option prior to the state, yes.

Donald S. Day:

I would like to save my time for rebuttal.

Earl Warren:

Mr. Kutz.

I. Henry Kutz:

May it please the Court.

The Second Circuit held and we think correctly that there was only one property here that was the proceeds of this insurance company.

In that property, the wife and the daughter had interest.

The daughter’s interest necessarily if it ever ripen into enjoin had to follow the wife and under the terms of the statute which Mr. Day read to the Court will be proceeds.

The statute very carefully distinguished between property and interest and provided that if an interest in one property follows the surviving spouse’s interest then the bequest to the surviving spouse does not qualify with the marital deduction.

For example, a device of two mother and daughter has joint tenants with right of survival will not there — will not qualify for the marital deduction because there is a possibility that the daughter’s interest will come in to enjoin after the wife.

Now, the —

Potter Stewart:

How, about the other kind of what do you suggest, tenants common or whatever it is —

I. Henry Kutz:

Tenants in —

Potter Stewart:

— provide a half interest in (Voice Overlap) —

I. Henry Kutz:

In tenants in common.

Potter Stewart:

— which the mothers inherent?

I. Henry Kutz:

That would be (Voice Overlap) —

Potter Stewart:

That would —

I. Henry Kutz:

— that would qualify because the daughter would never take after the mother.

They both have interest in the same property.

The law is very specific and I might say that the committee before go into great detail on this document and emphasized the different as does the regulation between property and interest.

The idea is they give the — under the term or interest rule that the surviving spouse shall get everything out, nothing shall follow.

I would like to read from the appendix to our brief page 65 to show the manner in which the committee report describes determinable interest.

And in particular of Clause 2 of the statute which is the one that provides that if the interest to the other person follows the wife’s interest then it doesn’t right.

I’m now reading from right on page 65 right under were B (12), this is from the finance committee report of the senate.

Clause 2 of subparagraph be applied if any persons other than the surviving spouse or his heirs or assigned made by any possible circumstances, by any possible circumstances under the terms of the bequest for those are enjoyed any part of the property in which the surviving spouse’s interest is an interest.

William O. Douglas:

But the same time or actually turn to page 61 from your brief towards the end, three lines from the bottom, the life stated the spouse which included (Inaudible) is deductable?

I. Henry Kutz:

I’m not sure I’ve found the place Your Honor.

William O. Douglas:

In your brief page 61.

I. Henry Kutz:

Yes sir.

William O. Douglas:

That still on the same committee report?

I. Henry Kutz:

Yes.

I. Henry Kutz:

Which sentence is Your Honor referring to?

William O. Douglas:

Three lines from the bottom.

The life stated (Inaudible)

I. Henry Kutz:

Yes.

William O. Douglas:

That’s the (Inaudible).

I. Henry Kutz:

It is if no one can take after it.

For instance —

William O. Douglas:

Somebody must — somebody must take after life state?

I. Henry Kutz:

No.

But it’s not an interest somebody must take after the life estate but in the event that it doesn’t passed from the decedent.

For instance if the decedent believes a path or a term for year then and that’s all and he has no further interest then the bequest will qualify.

But if there is a further interest passing from the decedent as there was here, there was an interest passing from decedent through the daughter then it will not qualify because if that interest ever ripens, it would ripen after the wife’s interest.

Now, the committee reports discussing for the example which the Second Circuit found helpful and which I think are helpful and I would like to call to the Court’s attention in particular respect to — to policies, insurance policy and annuity.

On page 29 of our brief, we give the person’s interest and this example show that the proceeds of a policy are dealt with as one property, not several properties and as we claim in this case, both daughter and mother had an interest in one property namely the proceeds of the policy and may I read with the Court’s permission example 1, quoted on page 29.

“The entire proceeds of an insurance policy on the life of the decedent are payable to the surviving spouse and the value of such proceeds is included in determining the value of the gross estate.”

A marital deduction is allowed with respect to the value of the proceeds because no person other than the surviving spouse has an interest in the proceeds.

The result will be the same whether such proceeds are payable in a lump sum are payable in installments to the surviving spouse, their heirs or assigns for a term or are payable to the surviving spouse for her life with no refund of the undistributed proceeds or with such a refund to her state.

Now, example 2 is given on page 30 and that deals with the case where there are refunds and this what the committee report said, the decedent during his lifetime purchased an annuity contract under which the annuity with payable during his life and then to his spouse during her life if she survived then the value would be interest of the decedent surviving spouse in such contract at the death of the decedent that’s included in determining the value of the gross estate.

A marital deduction is allowed with respect to the value of such interest so passing to the decedent surviving spouse in as much as no other person has an interest in the contract.

If upon the death of the surviving spouse, the annuity payments were to continue for a term to her estate or the undistributed portion thereof was paid to her estate the deduction has never alleged allowed with respect to such interest.

If however upon the death of the surviving spouse, the payments are to continue to another person not to her estate or the undistributed fund that could be paid to such other person, no marriageable — marital deduction was allowable in as much as an interest passed from the decedent to such other person and that is in the substance exactly what happened here.

Now, the reliance upon the book keeping transactions and entries of the insurance company seems to us quite misplaced.

The insurance company is just figuring risks.

There’s — the (Inaudible) can’t make separate properties of what is one property, there is only one property and that is the insurance policy.

I’d like to read from the record on page 11, the — which is — I’m sorry, on page 6, paragraph 11, that is the stipulation of fact and that fact was found by the District Court.

Neither of the above referred to policies provide and the decedent did not —

Earl Warren:

Two policies, T-W-O, should that be?

I. Henry Kutz:

Neither the above policies — referred to policies provide that the decedent did not request —

Earl Warren:

Yes.

Right (Inaudible) again.

I. Henry Kutz:

That there’d be any segregation of the proceeds to the policy between the amounts computable for the terms certain and the amounts computable for the funding of the contingent life annuity.

Both of the policies provide that the policy in the application therefore constitute the — the entire contract between the party.

William O. Douglas:

Suppose there had been a provision or segregation does that make a difference?

I. Henry Kutz:

I’m not — I’d rather doubt that it would unless there was a complete provision for different premiums being paid for different properties.

Now, this was just an interest in one — in one proceeds.

It was an interest in one contract.

It would’ve been quite a different thing.

There is a provision under the statute, the subparagraph G under which if the wife is given a life interest on the policy that his payments for life was powered through a point an exclusive unlimited power of appointment, she may — then in that event, and that is stated to be an exception to determinable interest rule in that event, the gift is qualified to the marital deduction but that is very different than what happened here.

She was given, the decedent choose to retain the power to give an interest to his daughter.

He didn’t leave it to his wife to that.

A community property state, she would’ve and insofar as community property is concerned, she would’ve had the power to decide whether she wanted to give it to the daughter or not.

And that determinable interest rule has been set to be the heart of the marital deduction.

They wanted to equalize the impact to the estate tax in the two types of jurisdiction and therefore they wanted to create to permit the deduction only in cases where the wife got what was substantially an absolute and outright interest such as her interest would’ve been and under community property.

Now, as another point that I would like to make so far as this bookkeeping entry division say $17,000 for the 20 year certain and $7,000 for monthly income thereafter that actually doesn’t represent the company’s true liability with respect to this policy because if this lady live to be a very old lady the $7,000 wouldn’t possibly have covered that.

That’s just for their convenience.

What was given here was a life interest in this widow.

She was given a $95 a month for life under one of the policies in a different amount under the other.

There was a provision that if she didn’t received if she didn’t live for 20 years then her daughter would’ve got the balance between the number of years she didn’t live and the 20 years.

But it is one interest, if one life interest in fact, the — that is what is called under the option is called in the Northwestern policy installments continuous for life and under the John Hancock policy it’s called life interest.

Now, the bookkeeping interest of an insurance company cannot make two properties out of what is one property and what obviously the committee reports considered with one property.

The — in the Ryle case which is the case which conflicted with the decision below an example is given by the Third Circuit which the — that Court thought sustain to view which taxpayer is taken but as the Second Circuit points out that example the Third Circuit misconstrued that example and I would like that the example in the question is on page 26 of our brief and I’d like to read it to the Court.

In the case of certain property which is determinable a marital deduction maybe allowed even though Clause 1 applies as long as Clause 2 does not applied.

Thus, if the decedent bequest all the interest he ever had in the patent to his wife and daughter, as tenants in common the marital deduction is allowed with respect to the interest of the wife in patent.

If however, the patent was bequest to them for joint lives and then to the survivor, the marital deduction would not be allowed.

Now, the reason why the marital deduction is allowed in the case where the patent is given to the wife and daughter as tenants in common is because the daughter gets nothing after the end of the wife’s life.

She can only — she receives it from the beginning and there is no — there’s no possibility that she will obtain anything after the conclusion of the wife’s life or the wife’s interest.

Accordingly, she gets in that case would qualify for the marital deduction.

Now, the treasury regulation confirms the Second Circuit’s construction of this example.

On page 51 of our brief, at the bottom of the page, we — the regulations give the example on the question.

H — a husband bequeaths a patent to W and A is tenants in common.

I. Henry Kutz:

In this case, the interest of W will terminate upon the expiration of the term of the patent but possession or enjoyment of the property by A must necessarily cease at the same time.

Therefore since A’s possessions are enjoined cannot outlast determination of W’s interest the latter is deductable interest.

Here on the other hand, if the daughter takes it all, she must take after her mother and accordingly we submit that under the terms of the regulations, the examples given in the committee report and the statute the — this — the policy — the proceeds of these policies did not qualify for the marital deduction.

What in effect taxpayer is doing is trying to amend the contract and we submit he can no more do that than he can amend the statute.

By saying that there were two properties here, the contract provided for only one and only one — in which it created an interest in the wife and then interest in the daughter.

There — since there was only one property with interest in those property in that property created and the interest to the daughter must follow the interest to the wife.

Never could come before the marital deduction, does not qualified with the marital deduction.

Earl Warren:

(Inaudible)

Donald S. Day:

I think probably that the error of the Government’s position is pointed out by counsel statement that there is only one property, since there was only one insurance policy.

I don’t think that’s quite correct.

I think that it’s perfectly clear that more than one property can strain from an insurance policy.

I think certainly if the — this insurance property, this insurance policy provided that upon the death on the insured 50% of the proceeds were to be paid to a son a named beneficiary and 50% of the proceeds were to be paid for the wife, certainly with respect to the 50% which went to the wife, there would be no question of the qualification of those proceeds for the marital deduction and yet out of the one policy we find two properties because we have a property first to the wife and secondly to the son.

Now, I think probably the error of the government position is also pointed out in the calling to the Court’s attention the example number one on page 29 which counsel read to the Court in which it deals again with an example discussed by the Senate Committee and which the Senate Committee specifically professes the example by this statement the entire proceeds of an insurance policy on the life of the decedent are payable to the surviving spouse then it gives the conditions under which payment is to be made for the spouse and I think there all we have to say is this.

Yes, this — in this particular case the Government is correct because the entire policy, the entire proceeds constitutes the one single property which is left out of the proceeds in the insurance policy which came to being upon the death of the insured.

But I don’t think that this means at all and I don’t think that any of the other examples which were before the Senate Committee or any other of the examples and the regulations indicate for one moment that there cannot be two properties formed on one insurance policy.

In each and every one of the examples before the committee report — before the committee and in each and every one of the example set forth in the regulations we find that the entire proceeds of the insurance policies or annuity contracts involved were vested either in the wife or in other person in accordance — in accordance with the facts set forth in those examples.

But in no example either before the committee or before or in the regulations is there any suggestion from this case that the proceeds maybe payable to two separate persons and that the proceeds may be divided into various interest which ripen into properties upon the death of the insured.

I think that is the real issue between us and the Government.

Hugo L. Black:

I don’t find (Inaudible) contrary?

Are you saying you’re not talking about two properties as I understand it you’re talking about the policies which provides to the man to let his wife gets 20 years in —

Donald S. Day:

That’s correct.

Hugo L. Black:

— insurance company (Inaudible) , but if she died in ten years the daughter will get that?

Donald S. Day:

That’s correct.

What is left behind —

Hugo L. Black:

Why do we have (Inaudible)?

Donald S. Day:

Because there’s a further provision.

Hugo L. Black:

One property or two property?

Donald S. Day:

Because there’s a further provision Your Honor that the policy additionally provided that in the event that the wife lived longer than the 20 year period that she was to receive in addition to the fixed monthly payment for the 20 years a contingent life annuity in the same amount in which her daughter had no interest whatsoever and that is the second property which was created by this policy upon the death of the insured.

Hugo L. Black:

Is that the only property that she probably in their name?

Donald S. Day:

There are two — those two proper —

Hugo L. Black:

Before the last property?

Donald S. Day:

That’s right Your Honor.

Charles E. Whittaker:

Why do you have to call them —

Donald S. Day:

We only talking —

Charles E. Whittaker:

You speak everything under what you call it.

Donald S. Day:

They were only called properties Your Honor because that is the terminology which unfortunately as used by Congress in the patent of the statute.

Charles E. Whittaker:

(Inaudible)

Donald S. Day:

Yes, that’s absolutely true.

Charles E. Whittaker:

And absolutely ended it all again, when anybody else having an interest in her inheritance she doesn’t qualify.

Donald S. Day:

That’s absolutely true Your Honor and with respect to the contingent life annuity only the wife has an interest though.

No one else, the daughter or anyone else as a contingent interest in that life annuity and to the extent of that part of the proceeds of the policy which were set aside to fund this contingent life annuity we think it should qualify for the marital deduction because that part will go outright to the wife and to no one else under any circumstances.

Charles E. Whittaker:

I suggest you mean that property in all that Congress will be the only word that it’s used through the collocation of words in which property is one.

Donald S. Day:

I think that —

Charles E. Whittaker:

And the question is whether the ingredient to the transaction satisfy that formulas upon.

Donald S. Day:

I’m sure that so.

Thank you.