THORSON, P.:—This is an appeal against the estate tax levied in respect of the estate of Gordon Papp, deceased, late of the Town of Peace River, in Alberta so far as it included the amount of $50,000, being the proceeds of a policy of life insurance on the life of the said Gordon Papp paid to his widow Mae Ritter Papp, the beneficiary of the policy.
The basic facts leading to the assessment may be stated briefly. Prior to his death, Gordon Papp, the deceased, and his wife Mae Ritter Papp were the only shareholders of Papp’s Truck Services Limited, hereinafter called the Company, incorporated under the laws of Alberta on February 24, 1956, and having its registered office at the Town of Peace River in Alberta. Of the ten issued shares of the Company Gordon Papp owned nine and his wife one. He was the president and managing director of the Company and his wife the secretary. The Company ran a trucking service,
On January 27, 1958, the Company applied to The Sovereign Life Assurance Company of Canada for a policy of insurance on the life of Gordon Papp in the amount of $50,000, naming his wife, Mae Ritter Papp, as the beneficiary. The policy, No. N162442, was issued on February 6, 1958, the premiums being $67,59 per month, payable in advance monthly. On October 22, 1959, the Company assigned all its right, title and interest in the policy to Mae Ritter Papp. The assignment was recorded in the books of The Sovereign Life Assurance Company on October 28, 1959.
On April 22, 1960, Gordon Papp died. On May 15, 1961, the Minister assessed the Estate of Gordon Papp for estate tax, including therein the sum of $50,000 as the value of the policy of insurance passing on the death of the deceased under Section 3(6) (b) and 3(l)(c) of the Estate Tax Act, Statutes of Canada, 1958, e, 29. The estate objected to the inclusion of the amount of $50,000 in the assessment. The appeal to this Court is confined to the question whether this amount was properly included in the assessment.
The appeal raises questions of importance. In assessing the estate the Minister relied on Sections 3(6) (b), 3(1) (c) and 58(s) of the Act. Section 3(6)(b) of the Act provides:
4 3. (6) For the purpose of this Act,
(b) a disposition made by a corporation controlled by the deceased to or for the benefit of any person connected with the deceased by blood relationship, marriage or adoption shall be deemed to be a disposition made by the deceased to or for the benefit of that person, and, in relation to any such disposition, any act or thing done or effected by that corporation shall be deemed to have been done or effected in all respects as though that corporation were the deceased.”
It is clear that this provision is applicable in the present case. The Company was controlled by Gordon Papp and Mae Ritter Papp was his wife. Consequently, the disposition made by the Company in assigning the policy of insurance to Mae Ritter Papp is deemed to be a disposition made by Gordon Papp to his wife.
That being so, and there cannot be any dispute about it, the Minister relied on Section 3(1) (c) of the Act which provides:
“3. (1) There shall be included in computing the aggregate net value of the property passing on the death of a person the value of all property wherever situated, passing on the death of such person including, without restricting the generality of the foregoing,
(c) property disposed of by the deceased under a disposition operating or purporting to operate as an immediate gift inter vivos, whether by transfer, delivery, declaration of trust or otherwise, made within three years prior to his death;”
The basic issue in the present case is whether the assignment of the insurance policy by the Company to Mae Ritter Papp, which is deemed to be a disposition of property by Gordon Papp to her, was an immediate gift inter vivos within the meaning of the section. If it was it was properly included in the assessment for it was made within three years prior to the death of Gordon Papp.
Counsel for the respondent contended that there had not been a valid assignment of the policy of life insurance. If that could be established it would be decisive against the appellant. The argument was, in brief, that there had never been a meeting of the Company authorizing the making of the assignment. The facts are that, apart from the initial organization meeting of the Company, there had never been any formal meetings of the Company, but Mrs. Papp stated that the assignment was discussed by the insurance agent, Gordon Papp and herself and that it was agreed that the insurance policy was to be assigned to her. If I had to decide whether the assignment was valid or not, I would decide that it was. But it does not matter, in view of the conclusion to which I have come, whether it was valid or not. If it was not valid then the case is free from any difficulty, for then the amount of the insurance would properly be included in the assessment. If, on the other hand, the assignment of the policy was valid, then the issue of whether the amount of $50,000 was properly included in the assessment under appeal can be stated briefly as follows, namely, that the assignment of the insurance policy by the Company to Mae Ritter Papp was a disposition of property by the Company to her, which is deemed by the Act to be a disposition by Gordon Papp to her, and that such disposition was an immediate gift inter vivos by Gordon Papp to his wife, and that its value was properly included in the assessment unless it could be shown that the disposition was made with consideration or that the property had no value and could not, therefore, be considered as an immediate gift inter vivos since it is obvious that there cannot be a gift of nothing. Therefore, the issue resolves itself into two questions, namely: did Mae Ritter Papp give any consideration to the Company, meaning thereby, according to Section 3(6) (b) of the Act, Gordon Papp, or did the policy that was assigned to Mae Ritter Papp have any value?
At the close of the hearing I reserved judgment. Since then I have had the opportunity of reviewing the transcript of the evidence and I have come to the conclusion that Mae Ritter Papp did not give any consideration for the assignment. The assumption that she undertook to pay the premiums on the policy of insurance after it was assigned to her on October 22, 1959, is unwarranted. She said that she was aware that an assignment was being made and that she would assume responsibility for making the payments of the premiums, that there were moneys owing to her by the Company, that she had a surplus in it and that she understood that the payments of the premiums were to be made by the Company and deducted from the amounts owing to her. But I am convinced and I find that Mae Ritter Papp never agreed with the Company, or Gordon Papp, to pay the premiums on the policy. This is clear from the following statements :
'‘Q. Did you make any statement on that occasion to your husband that you would make payments from then on, on this particular policy we are talking about? A. I don’t think I made a statement. It probably was discussed; it would have been an informal discussion.”
And then later, in reply to a question by counsel for the appellant, Mae Ritter Papp said:
“Q. One last question. Did anybody say to you that you would have to pay the instalments? A. I don’t recall.
Q. You don’t recall. And did you say to anybody that you would pay the instalments? A. I don’t think I did, no.”
Moreover, the suggestion that Mae Ritter Papp agreed to make the payments of the premiums by having the Company pay them against the amount owing to her is unwarranted. The evidence of Mr. Alfred Holm makes it clear that he suggested the idea of the assignment to Gordon Papp and never discussed it with Mrs. Papp until after her husband had died. And his evidence was that the Company continued to make the premium payments and claimed them as operating expenses. They were never charged against Mrs. Papp’s account. There was no indication that she had promised to make the premium payments. I find, therefore, that Mae Ritter Papp did not give any consideration to the Company or her husband for the assignment.
It was urged on behalf of the estate that the assignment of the insurance policy had no value. Under its terms it had no surrender value and no loan value and Mr. C. D. Wilson gave evidence that at the time of the assignment it had no market value. But this does not dispose of the matter, for immediately after the assignment of the policy of insurance Mae Ritter Papp had a chose in action. It is true that she could not sell it or borrow on it or get any surrender value for it, but it did have value, for if Gordon Papp had died she would immediately have had the right to receive payment of the amount of the policy.
I find, accordingly, that the assignment of the policy of insurance was a disposition of property and an immediate gift inter vivos within the meaning of Section 3(1) (c) of the Act.
It follows that its value must be determined pursuant to Section 58(1) (s) (ii) of the Act which provides:
“58. (1) In this Act,
(s) 4 value’
(ii) in relation to any other property, means the fair market value of such property,
computed in each ease as of the date of the death of the deceased in respect of whose death such value is relevant or as of such other date as is specified in this Act, without regard to any increase or decrease in such value after that date for any reason.’’
Consequently, the Minister was right in including the amount of $50,000 as the value of the insurance policy in the assessment against which the appeal herein was brought, from which it follows that the appeal must be dismissed with costs.
Judgment accordingly.
Email this Content