Reset A A Font size: Print

District Court of Appeal, Second District, Division 2, California.


Civ. 18214.

Decided: May 14, 1951

Frank M. Gunter, Beverly Hills, for appellant. James W. Hickey, Sacramento, Morton L. Barker and Walter H. Miller, Los Angeles, for respondent.

From the order fixing the amount of the inheritance tax upon the estate of his mother, Melanie L. Loewenstein, Herbert D. Lowell, her son and sole distributee of her estate, appeals.

In October, 1939, Henry Meis, uncle of decedent, residing in Ohio, purchased from the Connecticut Mutual Life Insurance Company an ‘interest income contract’ on the life of Melanie L. Loewenstein. It provided that the company held and would retain the amount of $68,828.54 and pay interest thereon monthly at not less than 3 per cent per annum to Melanie during her lifetime and after her death to her husband, Daniel Loewenstein, and after the death of the survivor of such persons to their son, appellant Herbert D. Lowell (formerly named Herbert D. Loewenstein) throughout his lifetime; that upon the death of the last survivor of Melanie, Daniel and Herbert, the company would pay the amount then retained to the surviving widow of Herbert, or if he leave no widow, to his surviving children in equal shares, or if there be no such children then surviving, the remainder of the amount then retained was to be distributed among four designated charities.

The contract provided also that prior to November 16, 1939, or after October 14, 1940, Melanie ‘with the written consent of said Henry Meis, or if he be deceased, with the written consent of the legal representative or representatives of said Henry Meis, may require the company to pay to her order any portion of the amount retained, interest payments on the amount so paid thereupon to cease.’

On October 24, 1947, at decedent's request, appellant and the executors of the estate of Henry Meis executed a document signed by decedent as follows: ‘Whereas said Melanie L. Loewenstein desires to have the right and power to require The Connecticut Mutual Life Insurance Company to pay to her order from time to time such portion or all of the amount retained by said Company pursuant to said agreement; and Whereas Herbert * * * is fully satisfied that his mother Melanie L. Loewenstein shall have such right and privilege and joins in this agreement for the purpose of giving such consent; and Whereas Charles Levy and Sidney J. Eisman as Executors of the Estate of Henry Meis, deceased, are agreeable to such payments to Melanie Loewenstein and join in this agreement for the purpose of giving their written consent to such payments to Melanie L. Loewenstein: Now Therefore, said Melanie * * * with the written consent of * * * Executors of the Estate of Henry Meis * * * does hereby request and require The * * * Company * * * to pay to her all or any portion of the amount retained * * * such withdrawals * * * to be made * * * at any time and from time to time of all or such amounts of principal which said Melanie * * * may desire to withdraw * * *.’

During her lifetime decedent did not require the company to make any payments of the principal to her. Consequently, the principal sum of the contract became the property of Herbert, next in line, either by virtue of the terms of the contract or by the laws of succession. The inheritance tax collector levied a tax upon the principal amount of the policy as payable to appellant because decedent, the Meis executors and appellant had executed the above quoted instrument which was approved by the insurance company.

The question for decision is whether the principal sum of the policy is properly subject to an inheritance tax as an inter vivos transfer without consideration intended to ‘take effect in possession or enjoyment at or after the death of the transferor’, pursuant to Revenue and Taxation Code, secs. 13641–13648.

Respondent urges affirmance of the judgment contending that the execution of the document of October 24, 1947, effected a termination of the interests of all contingent beneficiaries under the policy as created by Henry Meis; that this was an exercise of the option given Melanie in the policy; that she then had complete ownership and control over the principal; that as appellant received the proceeds on Melanie's death the property was subject to the tax.

There are two insurmountable obstacles blocking the path to such a simple and confident solution to the problem. First: The record does not disclose that the proceeds of the policy were or are to be paid to appellant. Indeed, appellant asserts that the insurance company is now paying to him only the interest currently earned by the principal sum and that the insurer recognizes fully the rights of the charities and other contingent beneficiaries under the original policy. Second: Contrary to what was adjudged below, it is not apparent that decedent so exercised the option given her under the contract that all rights of future beneficiaries were terminated.

The only reasonable interpretation of the provision giving Melanie the right to ‘require the Company to pay to her order, any portion of the amount retained’ is that Meis intended thereby to give his niece the authority to withdraw such portions of the principal as she and Meis' legal representatives might conclude to be necessary to provide for her well-being. Only by such actual withdrawal, and only to the extent of such withdrawals, would the interests of appellant and other potential beneficiaries be foreclosed. That appellant's interest in the contract fund was to be defeated only by an actual consumption of the principal is further indicated by the fact that the provisions creating Melanie's authority also added that ‘interest payments on the amount so paid thereupon cease.’

The original agreement between Meis and the company created a relationship between them akin to that of settlor-trustee with Melanie as beneficiary of a life income but giving her as holder of the life interest a power to invade the corpus with the consent of the settlor or his personal representatives. The agreement of October, 1947, did no more than to purport to give Melanie the consent of such representatives. It was merely a ‘consent in advance’ giving her a clear field to consume the principal at her discretion.1 It did no more than pave the way for any invasion. The result of its execution was the same as if the original contract as purchased by Meis had given Melanie the right to require payments to be made to her without consent of any person.

It is true that decedent's powers after the consent were virtually the equivalent of complete and absolute ownership. But this is the case in any situation where the holder of a life income who benefits under a trust has a power also to invade the corpus or has a general power of appointment. Fisher v. Ludwig, 6 Cal.App. 144, 91 P. 658, cited by respondent stands only for a proposition of personal property law that actual possession of property is not always necessary for a gift to be completed. No provision for remainder interests was there involved. The decedent therein intended to make a complete gift of the sums in his bank account by a transfer of the bank book alone. The decision is not applicable here.

It is true also that in the ‘request’ of October, 1947, decedent ‘does hereby request and require’ the insurance company to pay her the amount retained. However, this language is limited by the further declaration that ‘such withdrawals' are to be made from time to time as she ‘may desire.’ It follows that inasmuch as she left the funds with the insurance company, continued drawing only the interest thereon, and did not manifest any clear intent to terminate the original contract and substitute a new agreement with the company whereby she would retain only a reserved life interest in the proceeds, she has made no transfer to her son, either inter vivos or causa mortis. On the contrary, she did no more than prepare for a possible future exercise of the powers given to her. The second agreement did not change or terminate the interests of any remainderman and could not reasonably be construed to have been even an attempt to defeat their interests. Any proceeds of the policy, now or hereafter received by appellant or by others, flow only from the original donor, Henry Meis, and do not result from any transfer by decedent.

It should be noted that Melanie's interest, viewed as a power to consume or a power of appointment, might well be taxable as part of her estate under the Federal law. (Internal Revenue Code, sec. 811(f)(2)(A), 26 U.S.C.A. § 811(f)(2)(A).) But in this state such a power is now taxable only to the donor of such power (herein Mr. Meis) where the donor has died after June 25, 1935. See In re Estate of Rath, 10 Cal.2d 399, 407–408, 75 P.2d 509, 115 A.L.R. 836; Rev. & Tax.Code, secs. 13692 and 13693; In re Estate of Newton, 35 Cal.2d 830, 221 P.2d 952. The problem of whether a tax is due by Mr. Meis or one may be levied upon his estate is of no concern here. He deceased in 1943 and at the time was not a domiciliary of this state.

From the foregoing considerations it is ordered that the judgment be and it is hereby reversed with instructions to amend the findings, conclusions and judgment, and adjudge that no tax is due upon the principal sum payable by the Connecticut Mutual Life Insurance Company on its contract.

I dissent. I adhere to the views expressed by this court in Re Estate of Loewenstein, Cal.App., 228 P.2d 49.


1.  We express no opinion as to the validity of such an ‘advance consent.’

MOORE, Presiding Justice.

WILSON, J., concurs.

Copied to clipboard