Seward's Estate v. Commissioner of Internal Revenue

• Citation: 164 F.2d 434
• Decision Date: 10 November 1947
• Docket Number: No. 5657.,5657.
• Parties: SEWARD'S ESTATE v. COMMISSIONER OF INTERNAL REVENUE.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

164 F.2d 434 (1947)

SEWARD'S ESTATE v. COMMISSIONER OF INTERNAL REVENUE.

No. 5657.

Circuit Court of Appeals, Fourth Circuit.

November 10, 1947.

Benjamin T. Kinsey, Jr., of Petersburg, Va. (J. Gordon Bohannan, of Petersburg, Va., on the brief), for petitioner.

Austin Hoyt, Sp. Asst. to the Atty. Gen. (Theron Lamar Caudle, Asst. Atty. Gen., and Helen R. Carloss and Helen Goodner, Sp. Assts. to the Atty. Gen., on the brief), for respondent.

Before PARKER, SOPER and DOBIE, Circuit Judges.

SOPER, Circuit Judge.

This appeal involves an adjudication by the Tax Court of a deficiency in federal estate tax in the sum of $25,506.80 due to the failure of the executor of the estate of Harvey Seward to include in the gross estate the proceeds of three insurance policies and two endowment policies on the life of the decedent, on which he had paid the premiums, and which he assigned to the Petersburg Savings & Trust Company as trustee during his life. The principal question in the case, which arises under Section 811(g) (2) of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, § 811(g) (2), is whether the decedent at the time of his death on February 17, 1943, held any of the incidents of ownership with respect to the policies exercisable either alone or in conjunction with any other person. See also Section 811(c).

During his lifetime, the decedent had taken out five insurance policies in the aggregate sum of $90,000, three of which were limited payment life policies and two were endowment policies. The three life policies were: Phœnix Mutual Life Insurance Company of Hartford, $30,000; Equitable Life Assurance Society of the United States, $30,000; Travelers Insurance Company of Hartford, $5,000. The two endowment policies were issued by Provident Mutual Life Insurance Company of Philadelphia in the respective sums of $15,000 and $10,000.

On April 24, 1919, the decedent assigned all of the monies payable after death on these policies to the Petersburg Savings & Trust Company, as trustee, by three separate agreements. In one agreement he assigned the monies payable on the Phœnix policy for $30,000 for the benefit of his daughter Dorothy. In another he assigned the proceeds of the Equitable policy in the sum of $30,000 for the benefit of his daughter Sarah; and in the third he assigned the proceeds of the Provident policies and the Travelers policy, in the aggregate sum of $30,000, for the benefit of his daughter Harvey. Under the assignments the trustee was to collect the monies payable on the policies after the decedent's death and to hold the same absolutely and without reservation, free from the control, claims, demands and charges of the decedent and of his heirs or personal representatives, or any person whatsoever. The trustee was authorized to invest the proceeds and was directed to pay the net income quarterly to the beneficiary for life, and to pay the principal at the beneficiary's death to her appointees by will. If no appointees were named in the will of the beneficiary, it was provided that the principal was to be paid to her descendants and if none, to the decedent's other children and their descendants.

Subsequent to the execution of these deeds, the following transactions took place with respect to the policies in question. On June 16, 1919, the decedent changed the beneficiary in the Travelers policy from his estate to the trustee, subject to the terms of the trust of April 24, 1919. The decedent had the power to change the beneficiary in this policy and he made the change on a form which reserved to him the right to make a further change of beneficiary.

On June 20, 1919, the decedent changed the beneficiary under the Equitable policy from his wife to the trustee. Under this policy the assured had the right to change the beneficiary and in the document executed on June 20, 1919, the decedent represented that there was no existing assignment of the policy and expressly reserved the right of revocation with respect to the change of beneficiary.

On February 21, 1920, the decedent executed an instrument whereby he assigned unto the Trust Company the Phœnix policy itself, together with any monies payable thereunder after his death, in trust, upon substantially the same terms as those of the trust created on April 24, 1919; but the 1920 assignment expressly provided that the decedent could revoke it during his life by filing written notice with the trustee and the Insurance Company, and further provided that it was subject to the beneficiary provisions of the policy and that a change in beneficiary made under the reservation provided in the policy would constitute a revocation of the trust agreement.

On June 25, 1919, the wife of the decedent assigned to him all her right, title and interest in the Provident Insurance policy for $15,000, which was payable to her.

On June 26, 1919, the decedent executed an assignment of the Provident endowment policy for $15,000 to the Trust Company as trustee under the deed of April 24, 1919; and on June 30, the decedent executed a similar assignment with respect to the Provident endowment policy for $10,000. Each assignment transferred to the trustee under the deed of April 24, 1919, all the right, title and interest of the decedent in the policy covered thereby and all advantages to be derived therefrom and constituted the trustee the decedent's lawful attorney to collect all monies which under the policies should become owing.

Both Provident policies matured in 1937, while the decedent was still alive. On April 28, 1937, and September 29, 1937, respectively, the decedent and the trustee by two instruments directed the Insurance Company to retain the proceeds of the two policies and to pay the interest therefrom in semi-annual installments to the decedent for his life, without right of withdrawal, and to pay the proceeds on his death with accrued interest to the Trust Company as trustee; and the Insurance Company, in consideration of the surrender of the policies, agreed to carry out the direction.

On August 24, 1931, the decedent and the trustee joined in a suit in the Hustings or Corporation Court of the City of Petersburg against the four insurance companies above named. They alleged in the complaint that in executing the assignments of April 24, 1919, it was not the intention of the decedent or of the trustee to deprive him of the control of the policies during his life, or of any of the rights and benefits to which he was entitled thereunder, but the intention was merely to name the trustee as beneficiary of the policies, and to transfer to it the monies payable after the decedent's death, to be held in...