Estate Reynolds and Others v Commissioner for Inland Revenue

• Jurisdiction: South Africa
• Judge: Stratford ACJ, Beyers JA, De Villiers JA and Tindall AJA
• Judgment Date: 13 October 1936
• Citation: 1937 AD 57
• Court: Appellate Division

Stratford, A.C.J.:

The action which gave rise to this appeal was brought in the Natal Provincial Division to determine the liability for estate and succession duty in respect of assets dealt with in two deeds of settlement or trust, dated respectively 11th June, 1918, and 9th March, 1920, made by the late Sir F. U. Reynolds (hereinafter referred to as the deceased), who died in 1930, his wife having predeceased him in 1919. The first deed dealt with seven policies of insurances on the deceased's life and the sum of £120,000. In this deed, after reciting the deceased's desire to make a settlement of the said policies and the proceeds thereof and of the said sum of money for the benefit of his son and daughter, L. F. Reynolds and M. Z. Reynolds, the de granted the policies, the proceeds thereof and the said sum to his trustees in trust to hold the same upon the trusts mentioned in the deed. The deed required the trustees to apply so much of the income from the trust estate, as might be necessary, in payment of the premiums from time to time due upon the said policies. The balance of the income they had to accumulate during the lives of the deceased and his wife and upon the death of the survivor the trustees were obliged to appropriate to a capital fund the whole of the trust estate, including the income to that date, and stand possessed of the fund for the use of the beneficiaries and thereafter to pay and supply the income of such capital fund in equal shares between them. Clause 4 provided that the trustees should hold the said sum of £120,000, the proceeds of the policies and of the investments representing the same and the income thereof in trust for the two beneficiaries in equal shares, and clause 5 required the trustees, upon the death of the survivor, to divide the trust estate into two equal shares and appropriate one of such shares to each of the beneficiaries and hold the same in trust during the lifetime of each beneficiary. After dealing with the powers of the trustees to invest the trust estate and stating that the

Stratford, A.C.J.

deceased should have no power wholly or partly to revoke or cancel any of the trusts or provisions contained in the deed, the deed provided (clause 13) that each beneficiary should be at liberty to dispose by will of his or her respective share of the trust estate in favour of his or her children in equal shares and to make such provision for a surviving spouse as he or she might think fit and that should either beneficiary have no children such beneficiary should have an unrestricted power of disposition by will. Then, after providing for the case of a beneficiary dying without exercising his or her right to dispose of his share in the trust estate or without children, the deed, in clause 15, provided that if the beneficiaries should predecease the survivor without issue the trust estate should revert to and become the property of the estate of the deceased and should be dealt with as the deceased should appoint by last will and, failing such appointment, be disposed of in accordance with the law of succession ab intestato.

In pursuance of the deed the deceased duly ceded the said policies and transferred the amount of £120,000 to the trustees and the trustees thereafter paid the premiums as they fell due. The two beneficiaries, the son and daughter of the deceased, survived him.

In an action brought by the Commissioner for Inland Revenue against the executors (as first defendants); the two trustees of the said trust (as second defendants); the son, L. F. Reynolds (as third defendant), M. Z. Reynolds (as fourth defendant), and M. Gaden (as fifth defendant), the first question decided was whether estate duty was payable on the proceeds of the said life insurance policies ceded to the trustees as aforesaid. According to secs. 2 and 3 of Act 29 of 1922 estate is charged on the dutiable amount of the estate of a deceased person and the estate of such person is defined to consist of (a) all property of that person which passes on his death and all property which, in accordance with sec. 3, is deemed to pass on his death. Sub-sec. (4) of sec. 3, in defining what property is deemed to pass on the death of any person, deals specially with policies of insurance and states that such property shall include: - "any amount due and receivable under any policy of insurance effected by such person upon his own life when the policy has been wholly kept up by him; or a part of that amount in proportion to the aggregate of the premiums paid by him, when the policy has been partly kept up by him." It may be mentioned

Stratford, A.C.J.

also that sub-sec. 4 (f) includes in property deemed to pass, any property exceeding in value £100 passing under a donatio inter vivos made after 1st July, 1922, and taking effect within two years immediately prior to the death. In terms of sec. 23 (b) where estate duty is chargeable on property deemed to pass on the death, the person liable for the duty in the case of moneys received for a policy on the life of the deceased is the person by whom or on whose behalf such moneys have been received.

The Provincial Division held that in the present case the said policies were wholly kept up by the deceased within the meaning of sec. 3 (4) (a) and therefore estate duty was payable on their proceeds. CARLISLE, A.J., who delivered the judgment of the Court, held in effect, applying the language used by the judges who decided the case of Lord Advocate v Scott's Trustees ((1918) 1 Scots Law Times 344 and (1918) 2 Scots Law Times 97), that the premiums were as much paid by the deceased when they were paid indirectly by virtue of his direction under the trust as if they had been paid by his own cheques, that the deceased put a fund in the hands of the trustees for the purpose of paying the premiums after the date of the deed and that de facto the trustees applied that fund in paying the premiums acting on the mandate of the deceased and not on any mandate of the beneficiaries.

The appellants (namely all the defendants) challenge the correctness of that decision. The argument on their behalf is, shortly, as follows. The fiscus cannot bring its case on the proceeds of the policies under sec. 3 (1) (a) as the deceased divested himself of the policies in the trust deed in 1918 and therefore they did not constitute property which passed on the death of the deceased. It can, therefore, only rely on sec. 3 (4) (a) which was intended to bring into the net policies which would not otherwise be chargeable because they did not in fact pass on death. As sec. 3 (4) (a) deals only with policies alienated by the deceased the question who kept up the policies is only material in respect of the period after the deceased divested himself of the policies. The sole question, therefore, is whether, after the trust deed of 1918, the deceased...