Tax Aspect of Proceeds of a Life Insurance Policy Contract

August 27, 1958 BIR RULING NO. 475-58 Mr. Pacifico L. Bacani 26-A Vision St. Sta. Cruz, Manila S i r : Reference is made to your letter dated August 4, 1958, requesting the opinion of this Office on the tax aspect of proceeds of a life insurance policy contract to be placed in an irrevocable trust during the lifetime of the insured, and after the insured's death, the trustee will receive the proceeds of the life insurance policy, pay whatever estate and inheritance taxes which may be assessed against the estate of the deceased insured to the extent of the amount of the net proceeds, and in the event that the net proceeds shall exceed the amount of taxes due, to deliver the balance thereof to the executor, administrator or the heirs of said deceased insured. llcd The specific terms and conditions of the proposed trusteeship for the aforesaid life insurance are stated in your letter to the Philippine Trust Company, Plaza de Goiti, Manila, dated July 11, 1958, and the letter to you of the trust officer of the same company dated July 28, 1958, a copy each of which is attached to your letter under reply. In reply thereto, please be informed that this Office is of the opinion that the proceeds of the life insurance policy constitute property which is includible in the insured's gross estate upon his death within the purview of Section 88(e) of the Tax Code. It is noted that under the terms and conditions of the trust as proposed by the trust company, the insured will be responsible for the payment of premiums on the policy, that the policy shall name the trust company as "irrevocable beneficiary and trustee", that the trust becomes operative only upon the death of the insured when the trustee shall receive the proceeds of the policy, pay the transfer taxes due from the insured's estate and deliver the balance, if any, to the executor, administrator or the heirs of the deceased insured. The proposed condition that the said insurance policy shall name the trust company as "irrevocable beneficiary and trustee" can not prevail over the fact that the ultimate beneficiary is the estate. It is not the "irrevocable beneficiary and trustee" but the estate of the insured which will stand to benefit out of the insurance proceeds, said proceeds being payable to the executor, administrator or the heirs of the deceased insured after payment of the corresponding transfer taxes. cdta Very truly yours, (SGD.) MELECIO R. DOMINGO Acting Commissioner of Internal Revenue