Assigned life insurance policies may still pass on death and be aggregated with the general estate for estate duty

Assigned life insurance policies may still be treated as property deemed to pass on death for estate duty where the assured retained effective control, including the ability to borrow on the policies and keep them alive. The assignment to the grandchildren and notice under insurance law did not prevent inclusion in the deceased's estate. The proceeds also could not be treated as a separate estate, because that category applies only where the deceased never had any interest in the property. As the deceased had a real interest in the policies before assignment, the amounts had to be aggregated with the general estate and were taxable against the assessee.

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Issues: (i) Whether the life insurance policies assigned during the deceased's lifetime nonetheless passed on death so as to form part of the estate. (ii) Whether the amounts under the three policies could be treated as a separate estate under the aggregation provision or had to be aggregated with the general estate.

Issue (i): Whether the life insurance policies assigned during the deceased's lifetime nonetheless passed on death so as to form part of the estate.

Analysis: The statutory scheme treated money receivable under a policy kept up by the assured for the benefit of a donee, nominee, or assignee as property deemed to pass on death. Although the policies had been assigned in favour of the grandchildren and notice had been given under the insurance law, the deceased continued to retain and control the policies, including borrowing against them and keeping them alive. The assignment did not exclude the operation of the deeming provision in the estate duty law.

Conclusion: The policies were rightly treated as property passing on death and were includible in the estate, against the assessee.

Issue (ii): Whether the amounts under the three policies could be treated as a separate estate under the aggregation provision or had to be aggregated with the general estate.

Analysis: A separate estate arises only where the deceased never had an interest in the property. Applying the settled aggregation test, the deceased had a real interest in the policies before assignment, and even after assignment a resulting interest could arise in favour of the deceased or his representatives if the assignees disclaimed. The property therefore did not fall within the class of property in which the deceased never had an interest.

Conclusion: The amounts under the three policies had to be aggregated with the general estate, against the assessee.

Final Conclusion: The life insurance proceeds were part of the deceased's general estate for estate duty purposes and could not be assessed as a separate estate.

Ratio Decidendi: Where an assured assigns life insurance policies but retains effective control and the policies remain kept up for the assignees' benefit, the proceeds are deemed to pass on death and, unless the deceased never had any interest in the property, they must be aggregated with the general estate for estate duty.

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