Meyer v. United States
1960 U.S. LEXIS 1978, 364 U.S. 410, 5 L. Ed. 2d 161 (1960)
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Rule of Law:
For the purposes of the federal estate tax marital deduction, a single life insurance policy constitutes a single, indivisible 'property.' If any interest in that property may pass to a person other than the surviving spouse upon the termination of the spouse's interest, the entire property is considered a non-deductible terminable interest, regardless of how an insurer may internally allocate the proceeds for actuarial purposes.
Facts:
- Albert F. Meyer purchased two life insurance policies.
- Meyer selected a settlement option providing that upon his death, his wife would receive monthly payments for the rest of her life.
- The settlement option guaranteed the first 240 monthly payments (20 years).
- If Meyer's wife died before receiving all 240 guaranteed installments, their daughter would receive the remainder of those payments.
- If both the wife and daughter died before the 240 installments were paid, the remaining value would go to the estate of the last survivor.
- After the 240-month guaranteed period, only the wife was entitled to receive payments for the remainder of her life.
- Following Meyer's death, the insurer, for its own actuarial purposes, internally divided the policy proceeds on its books into two amounts: one to fund the 240 guaranteed payments and another to fund the contingent life annuity for the wife thereafter.
Procedural Posture:
- The executors of Albert F. Meyer's estate filed a federal estate tax return and paid the assessed tax.
- The executors then timely filed a claim with the government for a refund of tax paid on a portion of life insurance proceeds, arguing it qualified for the marital deduction.
- The refund claim was denied.
- The executors (plaintiffs) sued the United States in U.S. District Court (a trial court) to recover the alleged overpayment.
- The District Court granted summary judgment for the executors.
- The United States (appellant) appealed to the U.S. Court of Appeals for the Eighth Circuit.
- The Court of Appeals reversed the District Court's judgment, finding for the government.
- The executors (petitioners) petitioned the U.S. Supreme Court for a writ of certiorari, which was granted.
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Issue:
Does an insurer's internal bookkeeping, which separates the value of guaranteed payments from a contingent life annuity under a single life insurance policy, create two distinct 'properties' for the purposes of the marital deduction, thereby allowing the contingent annuity portion to qualify as a non-terminable interest?
Opinions:
Majority - Mr. Justice Whittaker
No. The insurer's bookkeeping entries do not create two separate properties; the single life insurance policy constitutes one indivisible property, and because an interest in it may pass to the daughter, it is a non-deductible terminable interest. The rights of the beneficiaries derive solely from the policy contract itself, not from the insurer's internal, unilateral accounting practices. The policy made no provision for creating two separate funds. Because the wife's interest could terminate upon her death within 240 months and the daughter could then possess a part of the property (the remaining payments), the entire proceeds fall under the terminable interest rule of § 812 (e)(1)(B). The legislative history of the statute confirms that an annuity for a spouse that continues to another person upon the spouse's death does not qualify for the marital deduction.
Dissenting - Mr. Justice Douglas
Yes. The Court errs by focusing on whether there is a single 'property' instead of analyzing the distinct 'interests' created by that property. The statute distinguishes between 'property' (the asset) and 'interest' (the nature of ownership). The wife held two distinct interests: a terminable interest in the 240 guaranteed payments (which rightly does not qualify for the deduction) and a non-terminable interest in the contingent life annuity that could never be possessed or enjoyed by anyone else. If the decedent had purchased two separate policies to create these two interests, the life annuity policy would have qualified for the deduction. The combination of these distinct interests into one policy document should not change the tax treatment of the non-terminable interest.
Analysis:
This case establishes a formalistic interpretation of the 'terminable interest' rule, prioritizing the singular nature of the underlying asset (the 'property') over the distinct, severable 'interests' it may create. The Court's decision clarifies that third-party administrative actions, such as an insurer's bookkeeping, cannot alter the legal character of property for tax purposes; only the terms of the governing instrument matter. This holding reinforces a strict construction of the marital deduction, thereby narrowing its applicability for bequests made through complex, single-instrument financial products and encouraging the use of separate instruments to achieve specific tax outcomes.
