that the evaluation shall occur 'at the time of death'. Treas. Reg. 105, Sec. 81.10. Again, in determining the value of insurance contracts under the estate tax, Congress has provided that the items to be considered in that regard are the '[amounts] receivable by the executor * * * [or] * * * by all other beneficiaries'. 26 U.S.C. § 2042 (1954), 26 U.S.C. § 811(g) (1939). Such beneficiaries of course can receive only the benefits payable on the occurrence of death.
Plaintiffs' attempted reliance on certain language torn from its context in Knowlton v. Moore, 1900, 178 U.S. 41, 49, 20 S. Ct. 747, 44 L. Ed. 969 and Edwards v. Slocum, 1924, 264 U.S. 61, 62, 44 S. Ct. 293, 68 L. Ed. 564 is unconvincing. The Court there was not dealing with the present question of the time of incidence of the estate tax, but was simply comparing such tax with one on property, on the one hand, and a State inheritance tax, on the other. As compared with an inheritance tax, which is on the right of the heir to inherit the property of decedent, the estate tax is one on the right of the decedent's representative to 'transfer' such property. The philosophic and legal basis of both such death taxes is that the Government, under which such rights exist either to transfer or to inherit, can properly charge for carrying out and protecting the wishes of the decedent in seeing that his property reaches his heir, and in protecting such transfer against all attack by third parties, such as might well occur in an uncivilized, ungoverned community. In short, the time the annuity contract rights of the Christiernin wife and son, which plaintiffs agree are the only ones to be considered, are to be valued, is clearly as of the instant of the death of the decedent. Such being the case, the annuity contract in question here is comparable, not to the rights of the wife and son when the decedent was still living, but to such rights the instant he died. Thus the Commissioner, in using as a comparable contract an annuity contract issued by the same company to the same theoretic persons -- the wife and son -- at the same ages, in the same amounts, was clearly using a 'comparable' contract. Indeed this use of a single life annuity contract was implicitly upheld by the Third Circuit in the similar situation involved in Mearkle's Estate v. Commissioner, 3 Cir., 1942, 129 F.2d 386. See accord Estate of Welliver, 1947, 8 T.C. 165.
It should be noted that the contrary conclusion of the Tax Court in Estate of Higgs, 1949, 12 T.C. 280, was not even considered by the Third Circuit when it reversed such decision on other grounds, Estate of Higgs v. Commissioner, 3 Cir., 1950, 184 F.2d 427. Nor was the similar viewpoint of the Tax Court in Estate of Twogood, 1950, 15 T.C. 989, at all passed on in Commissioner v. Twogood, 2 Cir., 1952, 194 F.2d 627, since the Court there held the estate not taxable at all. Further, certain of the language of the District Court in Grant v. Smyth, D.C.N.D.Cal.1954, 123 F.Supp. 771, affirmed on opinion below, 9 Cir., 1955, 226 F.2d 407, can hardly be deemed a definite holding to the contrary, in the light of the fact that the value of the annuity there, of some $ 160,000, is actuarially based upon a single life, not a survivorship, contract. Treas. Reg. 105, Sec. 81.10(a)(i)(3), page 775.
Plaintiffs further object that the Metropolitan annuity contract, used by the Commissioner as 'comparable', was not comparable to the annuity rights of the wife and son here, in type, as distinguished from time. This contention is primarily that the Metropolitan, which issued the contract here in question, did not issue other annuity contracts giving rights of guaranteed return identic with such rights given the son here. As to this, in the first place we should bear in mind that these rights of the son are relatively inconsequential. The rights of Mrs. Christiernin are valued at more than $ 18,000. The rights of the son are valued at less than $ 1,000. In addition, the Metropolitan, in connection with its annuity contracts otherwise on all fours with the rights of the wife here, would issue a guaranteed return to the son, based upon all of the policy premium payments, as distinguished from the policy premium payments made here by decedent only, and it also regularly issues an annuity contract on all fours with that issued the wife here, with no guaranteed return. To do equity even as to this relatively small item, the Commissioner accordingly valued the guaranteed return to the son here according to the identic actuarial formula that the Metropolitan used in valuing its above alternative guaranteed returns, applying same to the premiums contributed by decedent here. Surely this lack of complete identity in this relatively insignificant item can hardly prevent the annuity contract used by the Commissioner, and issued by the same company under approximately the same terms, to the same people, from being considered 'comparable'. Nor is the fact that there is a theoretic difference in the loading charge upon the group contract originally issued to the decedent and others, from the similar charge made to a private annuity applicant, sufficient to render the contracts non-comparable. The Third Circuit has already held in Mearkle, 129 F.2d at pages 388-389, that such a difference in loading is insufficient to invalidate similar action by the Commissioner. As to the possible difference in mortality rates between a participant in a group annuity contract and the holder of an individual annuity contract, this must be slight indeed, since the actuarial tables set up in the Regulations, for possible use in valuing such annuity when no comparable contracts exist, in no wise allude to any such differentiation. Furthermore, since we are dealing now with the value of these annuity rights of the wife and son as they existed after decedent's death, it can make no difference how, due to such other factors, the original cost varies. The value of these rights of the wife and son are fixed, not as of the time of the original issue of the annuity contract, but as of the time of death. Further, the law justifies overlooking any such possible slight differentiation in original cost, in order to apply the simple common-sense rule of establishing the value of an annuity contract by ascertaining its market value according to the ancient law of supply and demand.
To be sure Grant, supra, alludes to certain additional factors which would appear to make the Commissioner's annuity contract there used non-comparable in that case. But there was no showing here, as there was in Grant, that income tax consequences of the hypothetical and actual contract used here are so different as to make the economic benefits received from such contracts vary substantially, and that thus the action of the Commissioner in using the hypothetical contract was arbitrary, and not to be sustained. Mearkle, supra. Furthermore, the District Court, in Grant, in invalidating the use of the hypothetical contract there pointed out that the annuitant there would have had to outlive his life expectancy by over 30% in order to recapture his principal alone, and there was in that case no guaranteed return. But here, according to the actuarial tables in the appendix to Rule 4 of the Revised Rules used in the New Jersey Courts, stipulated in evidence, Mrs. Christiernin had a life expectancy at the time of her husband's death which would enable her to get a complete return of her principal. While this does not include the fact that she would not earn any interest, that factor is substantially set off by the presence in her contract of a guaranteed return, the security value of a fixed income for life, and the possibility of outliving her life expectancy. This last is no mere speculation, as the testimony in this case indicates that insurance companies find it necessary, in pricing annuities, to consider that annuitants are in fact younger than their actual ages.
Again, if we adopt the actuarial calculation of plaintiffs as to the value of the wife's and son's rights here, we find that such rights are worth less than the cost of the wife's rights alone, without any guaranteed return to the son, according to the selling price of the comparable Metropolitan annuity. If anything, then, it is not the Commissioner's method, but plaintiffs' method, which reaches an arbitrary result.
In the light of the above, it would appear (1) that the estate tax is one conditioned on death, (2) that the rights of the wife and son, now to be valued, at and after such death, are the equivalent of single life annuities with guaranteed return, (3) that the regular single life annuity of the Metropolitan Life Insurance Company, which issued the contract here in question, and which was used by the Commissioner as a basis for valuation, was 'comparable' to the contractual rights in question here. It therefore follows that the action of the Commissioner in thus valuing such contractual rights was not arbitrary, but proper and lawful, as is the tax assessed by him as above.
Judgment with costs will accordingly be entered for the defendant.
The facts herein stated and the conclusions of law herein expressed shall be considered the findings of fact and the conclusions of law required by Fed.Rules Civ.Proc. rule 52, 28 U.S.C.