ARTHUR GUY & others, trustees, vs. COMMISSIONER OF CORPORATIONS AND TAXATION & others.

CUTTER, J. John J. DeVincent (the insured) died at a hospital on April 23, 1958. While in the hospital, he executed on February 22, 1958, a revocable trust under which his wife was to receive the trust income for her life and to have a general power to dispose of part of the principal by her will. [Note 1] Subject to the wife's interests, the trust property was to be held primarily for the benefit of his children and more remote issue. [Note 2]

The insured placed $100 subject to this trust and shortly thereafter executed the necessary insurance company forms

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to change the beneficiaries of certain life insurance policies on his life, so that the trustees of the revocable trust became the beneficiaries. Prior to these changes of beneficiary, the policies had all been payable, in the event of the insured's death, to his wife, and, if she predeceased him, in equal shares to his children.

After the insured's death, the trustees collected $156,099.66 of insurance proceeds. The executors of the insured's will (also executed on February 22, 1958; see New England Trust Co. v. Commissioner of Corps. & Taxn. 315 Mass. 639, 647) reported the foregoing facts to the Massachusetts inheritance tax authorities, but claimed that the insurance proceeds were not subject to Massachusetts death taxes (see G. L. cc. 65, 65A). The commissioner on January 29, 1964, apparently treating the changes of beneficiary as made "in contemplation of the . . . [insured's] death" within G. L. c. 65, Section 1, made a determination of the value of the trust property and, on March 3, 1964, certified to the trustees a tax of $3,047.87 on the present interest in the trust property.

The trustees then filed this petition in equity (see G. L. [Ter. Ed.] c. 65, Section 30) to determine whether a tax under c. 65 was due with respect to the life insurance proceeds. The probate judge reserved and reported the case to this court without decision upon the pleadings and a statement of agreed facts.

In Tyler v. Treasurer & Recr. Gen. 226 Mass. 306, 310, this court in 1917 considered the taxation of life insurance policy proceeds with particular reference (see p. 307) to the provision now found in G. L. c. 65, Section 1 (as amended through St. 1955, c. 596; see later amendment by St. 1961, c. 403) imposing an inheritance tax upon property passing by gift "made or intended to take effect . . . after . . . [a decedent's] death." This court applied (p. 309) the principle that tax laws are to be strictly construed and gave weight (p. 310) to "the practical construction put upon the law by those charged with . . . [its] enforcement . . . through many years." In an opinion by Chief Justice Rugg, it was

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concluded "that sums received by beneficiaries in accordance with designations made in contracts of insurance are not subject to the succession tax."

In Welch v. Commissioner of Corps. & Taxn. 309 Mass. 293 (although it was pointed out, see pp. 294-295, that no contention was then made that policies had been "transferred . . . by the insured in contemplation of death"), it was held (pp. 296-300) that the proceeds of life insurance policies payable to trustees under a trust indenture for the benefit of others were not subject to tax under G. L. c. 65 upon the death of the insured. The case placed (p. 298) some emphasis upon the circumstance that "our taxing statutes have never contained any special provisions laying an excise based on the amounts receivable from life insurance by the beneficiary designated in the policy." The court (by Ronan, J.) went on to say, "There is no power to tax in the absence of a statute expressly granting such authority." [Note 3]

In Gregg v. Commissioner of Corps. & Taxn. 315 Mass. 704, 711, this court (again speaking by Ronan, J.) "confined" the Tyler case "to its facts" and declined to extend its doctrine to a death benefit under an annuity contract. We do not regard that case as limiting the effect of the Tyler and Welch cases as applied to insurance policies.

In the nearly half a century since the Tyler case, there has obviously been reliance on that decision. Despite the limiting language of the Gregg case, the reasoning in the Tyler case and the Welch case was broad, and substantially proceeds on the principle that the payment of insurance proceeds at the death of the insured has not been subjected

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to succession tax by the Legislature. Although the facts of these cases directly raised only the question whether insurance proceeds could be taxed (under the general language of what is now c. 65, Section 1) as gifts to take effect in possession at or after the insured's death, most of what was said (especially in the Tyler case) seems appropriate to exclude a tax upon such insurance proceeds as a "gift . . . made in contemplation of the death of the . . . donor." As was pointed out in the Welch case ( 309 Mass. 293, at pp. 299-300), the Legislature has refrained from adopting legislation to change the effect of the Tyler case. [Note 4]

It was said in the Welch case, at pp. 298-299, "that the concept of transfers within both the Federal and the State taxing statutes has been greatly broadened since the decision in the Tyler case" in 1917. We need not decide whether, as a matter of first impression, the Tyler case would have been decided differently today. That there has been a change of tax concepts does not seem to us to be sufficient reason for changing by judicial decision the long standing interpretation of what is now G. L. c. 65, Section 1. After this lapse of time, we think that, if any change is to be made in the application of G. L. c. 65 to the proceeds of life insurance policies, that change should be made by the Legislature rather than by a new interpretation of the statute by a court.

A decree is to be entered in the Probate Court (1) declaring that the proceeds of the insurance policies on the insured's life are not subject to tax under G. L. c. 65, and (2) ordering that the tax certified with respect to such proceeds be abated.

So ordered.