*1683 1. If an insurance policy reserves to the insured, acting alone, the power to change the beneficiary, no absolute rights vest in the beneficiary and the transfer of the beneficial interest is incomplete until the death of the insured.
2. Where the name of the beneficiary in a life insurance policy is followed by the words "with right of revocation," and the policy elsewhere provides that, "When the right of revocation has been reserved * * * the insured * * * may * * * designate a new beneficiary, with or without reserving right of revocation, by filing written notice thereof at the home office of the company accompanied by the policy for suitable indorsement thereon," the insured, when designating a new beneficiary, must state in the notice thereof filed with the insurance company that he reserves the right of revocation if he desires again to exercise such a right.
3. Where insured in such a situation fails, at the time of making a change in beneficiary, to indicate a desire further to reserve the right to change the beneficiary, no right of revocation persists, the transfer of the beneficial interest in the proceeds of the policy occurs immediately, and the proceeds of*1684 the policy on the death of the insured should not be included in the decedent's gross estate for taxation.
4. In construing a contract effect should be given to all its provisions if such be possible, and, where two constructions are possible, the one which gives effect to all is preferable to one that gives effect but to part and nullifies in part.
*166 In this proceeding the petitioners seek a redetermination of a deficiency in estate taxes asserted to be due from the estate of James H. Reed, deceased, in the amount of $24,025.69. Of this amount the sum of $23,767.38 is in controversy.
The following errors on the part of the respondent are alleged:
(1) The inclusion in the decedent's gross estate of the proceeds of six certain policies of insurance on the decedent's life, receivable by beneficiaries other than the decedent's executors.
(2) Failure to allow as deductions from the decedent's gross estate certain payments made by the executors of the decedent's estate, representing unpaid balances on pledges of the decedent made to the*1685 University of Pittsburgh and to the Pittsburgh Medical Center.
*167 FINDINGS OF FACT.
James H. Reed, a resident of Pittsburgh, Pa., died on June 17, 1927. The petitioners, David A. Reed and Report T. Rossell, are the duly qualified executors of the last will of the said James H. Reed. During his lifetime the decedent took out six policies of life insurance with the following companies, on the dates and in the amounts specified:
| Company | Number of | Date of issue | Amount of |
| policy | proceeds | ||
| New York Life Insurance Co | 4075541 | May 27, 1908 | $50,082.83 |
| Do | 4075542 | do | 50,082.83 |
| Do | 4119976 | Feb. 3, 1909 | 50,396.50 |
| Do | 4119975 | May 24, 1909 | 50,089.73 |
| Equitable Life Assurance | 796298 | Nov. 9, 1896 | 30,607.00 |
| Society | |||
| Do | 835766 | Oct. 4, 1897 | 30,000.00 |
| Total | 261,258.89 |
The first three policies are termed "the first group" and the last three "the second group." All policies issued by the New York Life Insurance Company were in the same form. In the first two policies the beneficiary named was "Kate J., wife of the Insured; or in the event of her prior death (to) Katharine, daughter of the Insured (beneficiary) with right of revocation. *1686 " In the third policy, No. 4119976, the beneficiary named was "Kate J., wife of the insured * * * with right of revocation." A blank space appeared after the word "with" to permit the addition of "out" thereafter in order to conform to the policyholder's election.
The policy contained the following clause:
CHANGE OF BENEFICIARY. - When the right of revocation has been reserved, or in case of the death of any beneficiary under either a revocable or irrevocable designation, the Insured, if there be no existing assignment of the Policy made as herein provided, may, while the Policy is in force, designate a new beneficiary with or without reserving right of revocation by filing written notice thereof at the Home Office of the Company, accompanied by the Policy for suitable indorsement thereon. Such change shall take effect upon the indorsement of the same on the Policy by the Company and not before. If and beneficiary shall die before the Insured, the interest of such beneficiary shall vest in the Insured.
On April 18, 1910, the decedent revoked the original designation of beneficiary in the said three policies and named the following new beneficiaries:
No. 4075541. Kate J. *1687 Reed, wife, or in event of her prior death (to) James H. Reed, Jr., son.
No. 4075542. Kate J. Reed, wife, or in event of her prior death (to) David A. Reed, son.
No. 4119976, Katharine Reed, daughter, or in event of her prior death, (to) Kate J. Reed, wife.
*168 The following form was common to the policies:
The beneficiary under the accompanying Policy No. 4075541 is hereby changed in accordance with the Change of Beneficiary Clause thereof, to Kate J. Reed, wife, or in event of her prior death, to James H. Reed, Jr., son, such change to take effect only when indorsed on the Policy by the Company at the Home Office.
The policy is not now assigned.
In none of the policies in this group did the decedent at the time the beneficiary was changed expressly reserve the right of revocation as provided in the "change of beneficiary" clause. Kate J. Reed and Katharine Reed survived the decedent.
The first policy in the second group, No. 4119975, in the New York Life Insurance Company, was in the same form as the policies of the first group and named as beneficiary "Kate J., wife of the insured, with right of revocation." The two policies in the Equitable Life Assurance*1688 Society named Kate J. Reed as beneficiary in the following language:
Kate J. Reed, hereinafter known as the beneficiary, wife of the Assured, or in the event of her prior death, to the Assured's Executors, Administrators or Assigns, subject to the right of the Assured to change the beneficiary.
and contained the following clause:
IX. PRIVILEGE OF CHANGING BENEFICIARY.This policy is issued with the express understanding that the assured may, providing this policy has not been assigned, change the beneficiary, or beneficiaries, at any time during the continuance of this policy, by filing with the Society a written request, duly acknowledged, accompanied by this policy; such change to take effect upon the indorsement of the same on the policy by the Society.
The decedent made no change in the beneficiaries originally designated in the policies of the second group. The respondent included in the decedent's gross estate the proceeds of all the above named six policies in excess of $40,000.
Prior to his death the decedent executed the following pledges:
UNIVERSITY BUILDING FUND
MAY 5, 1925.
In consideration of the gifts of others, I Promise to pay to the University*1689 of Pittsburgh or order the sum of $10,000 as follows: If not paid in full, balance payable in five equal annual installments beginning June 30, 1925.
JAMES H. REED.
DEC. 6/26
For the purpose of providing buildings and endowment for the Presbyterian and Eye and Ear Hospitals in the Pittsburgh Medical Center, and in consideration of the subscriptions of others, I promise to pay to Pittsburgh Medical Center at the Potter Title and Trust Company or the Fidelity Title and Trust Company, *169 Pittsburgh, the sum of $2,500. I agree to pay the above subscription as follows: One-fourth on or before April 15, 1927, and the balance in three equal installments on October 15, 1927, April 15, 1928, and October 15, 1928.
J. H. REED.After securing a large number of pledges similar to that signed by the decedent, the University of Pittsburgh proceeded with the erection of a building known as the Cathedral of Learning. During his life the decedent paid $4,000 on his pledge to the University of Pittsburgh and $625 on his pledge to the Pittsburgh Medical Center. The petitioners paid the balances due on these pledges, aggregating $7,785. The respondent did not allow such payments*1690 as deductions from the decedent's gross estate.
OPINION.
VAN FOSSAN: The first allegation of error challenges the action of the respondent in including in the gross estate of James H. Reed, deceased, the proceeds of six life insurance policies in excess of $40,000, receivable by beneficiaries other than the executors of the estate.
The Revenue Act of 1926 provides:
SEC. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated -
* * *
(g) To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life.
The petitioners maintain that as to the first group of policies the power of revocation was not lodged in the decedent at his death and hence the beneficial interest in the proceeds thereof had vested fully in the beneficiaries.
The language of the insurance contract establishing Kate J. Reed as the*1691 primary beneficiary is as follfows: "New-York Life Insurance Company * * * promises to pay * * * to Kate J., wife of the Insured * * * with * * * right of revocation." The insured had the option of reserving or relinquishing his right of revocation. At the time the policies were issued the decedent chose to retain it. However, in the later clause entitled "change of beneficiary" the insured was given the right to designate a new beneficiary with or without reserving the right of revocation.
The respondent contends that the phrase "with * * * right of revocation" appearing after the designation of the beneficiary, is general in character and continued in effect during the life of the policy. Petitioner contends that when this provision is read in connection *170 with other provisions of the policy the insured at the time of his death had no right of revocation and that, accordingly, the right to the proceeds of the policies had vested.
The respondent further asserts that the decedent's failure to reserve his right of revocation under the "change of beneficiary" provision was not equivalent to a relinquishment of that right, but was merely a silence without significance.
*1692 With neither of respondent's propositions can we agree. The language of the paragraph styled "change of beneficiary" must be closely scrutinized. The gist of its provisions is that "when right of revocation has been reserved (as here) * * * the Insured * * * may * * * designate a new beneficiary with or without reserving right of revocation * * *." The right to change a beneficiary must be expressly reserved. Cooley, Briefs on Law of Insurance, Vol. IV, p. 3755. In the absence of an express reservation the rights of the named beneficiary are protected and his consent to a change must be secured. Joyce, The Law of Insurance (2d ed.), sec. 730; Smith v. Metropolitan Insurance Co., 34 Pa.Sup. 72; ; . Here, we have two pertinent provisions relating to revocation. The first grants the right. The second indicates how it may be perpetuated. When decedent elected to exercise the right first granted he brought into action the provision of the later paragraph. Under this paragraph affirmative reservation of the right to make a further change is*1693 necessary.
In ; , the Supreme Court of Mississippi had before it the exact question presented in the instant case. The insurance policy there under consideration contained precisely the same two provisions and in the identical language found in the policies here in controversy. It was there held:
Where the name of the beneficiary in a life insurance policy is followed by the words "with right of revocation," and the policy provides that, "When the right of revocation has been reserved * * * the insured * * * may * * * designate a new beneficiary, with or without reserving right of revocation, by filing written notice thereof at the home office of the company accompanied by the policy for suitable indorsement thereon," the insured, when designating a new beneficiary, must state in the notice thereof filed with the insurance company that he reserves the right of revocation if he desires to again exercise such a right.
Thus when decedent exercised the right of revocation granted by the policy and designated a new beneficiary without expressly reserving the right to make a further change, his right*1694 of revocation was gone and revocation could then be made only with consent of the new beneficiary.
*171 Looking at the converse of this reasoning, if the right of revocation granted in the first quoted portion of the contract was a continuing right and authorized innumerable changes of beneficiary, then the provision in the later paragraph styled "change of beneficiary" (i.e., with or without reserving right of revocation) is not merely meaningless, but actually in conflict with the first provision. In construing a contract effect should be given to all its provisions if such be possible, and, where two constructions are possible, the one which gives effect to all is preferable to one that gives effect but to part and nullifies in part.
The construction we have adopted gives effect to both provisions of the contract.
Under the rule laid down in ; ; and , a transfer made subject to a power of revocation in the transferor, terminable at his death, is not complete until his*1695 death. If an insurance policy reserves to the insured alone the power to change the beneficiary, no absolute rights vest in the beneficiary and the transfer is incomplete until the death of the insured.
On the other hand, if the power of revocation be not reserved, or, as in the instant case, has been originally reserved, then exercised and exhausted and lost because of failure to make specific further reservation, the transfer of the rights under the policy has occurred prior to the death of the decedent and at his death the proceeds of the policy form no part of his taxable estate.
In the case before us, as to the first group of policies no power of revocation remained in the insured after the designation of the second beneficiaries. The transfer of the beneficial interest in the proceeds of the policies, therefore, occurred on April 18, 1910. The transfer having been effectively made and the rights of the beneficiaries having vested long prior to decedent's death, the proceeds of the policies were improperly included as part of the taxable estate of decedent. See *1696 ; .
Though the Supreme Court had under consideration a different statute, the reasoning employed in , as to the "five trusts" lends strong support to the decision here reached as to the first group of policies. The court there said:
Since the power to revoke or alter was dependent on the consent of the one entitled to the beneficial, and consequently adverse, interest, the trust, for all practical purposes, had passed as completely from any control by decedent which might inure to his benefit as if the gift had been absolute.
In the second group of policies the converse situation is presented. In Policy No. 4119975 of the New York Life Insurance Company *172 the beneficiary clause reserved the right of revocation to the insured. The "change of beneficiary" clause, uniform in all the New York Life Insurance Company policies, specifically granted to him the right to name a new beneficiary when the right of revocation had been reserved and certain collateral conditions had been met. During his lifetime*1697 and while the policy was in force, the decedent designated his wife, Kate J. Reed, as his primary beneficiary and made no change in that designation. In the Equitable Life Assurance Society policies the provisions governing the rights of revocation and change of beneficiary were even broader. The beneficiary clause named as beneficiary Kate J. Reed, wife of the assured, "subject to the right of the assured to change the beneficiary" and the clause entitled "privilege of changing beneficiary" granted the assured the right to change the beneficiary at any time during the continuance of the policy.
In the second group, therefore, the insured, up to the time of his death, possessed the right of revocation and the right to substitute a new beneficiary in the place of the one named. Such rights gave him the control over the benefits flowing from the contracts of insurance and the power to direct their future enjoyment until his death. Thus the facts of the second group of policies bring them within the rule laid down in :
Termination of the power of control at the time of death inures to the benefit of him who owns*1698 the property subject to the power, and thus brings about, at death, the completion of that shifting of the economic benefits of property which is the real subject of the tax.
The proceeds of the second group in excess of $40,000 are taxable. See ; ; ;
The petitioners contend that an act imposing a tax on the proceeds of an insurance policy taken out prior to 1918 is unconstitutional. We find no authority for this view. The petitioners cite ; ; and , as supporting their contention. The situation presented in the Frick case was extensively considered in .
The second issue is whether or not the payments made by the petitioners to cancel unpaid balances on certain pledges of the decedent to the University of Pittsburgh and the Pittsburgh Medical Center*1699 are properly deductible as claims from the decedent's gross estate under the provisions of section 303(a)(1) of the Revenue Act of 1926.
*173 The situation on this point is similar to that in , and on the authority of that decision we hold that the sum of $7,875 paid to discharge such obligations is deductible from the decedent's gross estate.
The respondent contends that the consideration for the claims against the estate must have been received by the decedent. We have disposed of this question in , where we held that such a requirement is not prerequisite to the allowance of the deduction.
Judgment will be entered under Rule 50.