SECOND NAT. BANK OF DANVILLE, ILL. v. Dallman, 10941.

• Decision Date: 12 January 1954
• Docket Number: No. 10941.,10941.
• Citation: 209 F.2d 321
• Parties: SECOND NAT. BANK OF DANVILLE, ILL. v. DALLMAN.
• Court: U.S. Court of Appeals — Seventh Circuit

209 F.2d 321 (1954)

SECOND NAT. BANK OF DANVILLE, ILL. v. DALLMAN.

No. 10941.

United States Court of Appeals, Seventh Circuit.

January 12, 1954.

Horace E. Gunn, Walter T. Gunn and Bookwalter, Carter, Gunn & Hickman, Danville, Ill., for plaintiff-appellant.

H. Brian Holland, Asst. Atty. Gen., Melva M. Graney, Sp. Asst. to Atty. Gen., John B. Stoddart, Jr., U. S. Atty., Springfield, Ill., Ellis N. Slack, A. F. Prescott, Fred E. Youngman, Sp. Assts. to Atty. Gen., Marks Alexander, Asst. U. S. Atty., Springfield, Ill., for defendant-appellee.

Before MAJOR, Chief Judge, and DUFFY and SWAIM, Circuit Judges.

MAJOR, Chief Judge.

This is an appeal from a judgment entered by the district court on June 9, 1953, adverse to plaintiff, in an action to recover a federal estate tax paid under protest on the estate of Helen L. Abdill, deceased. Plaintiff is a trustee designated under the last will and testament of the said decedent. The portion of her estate upon which the tax was paid and for which the refund is sought is the sum of $30,000, proceeds of a life insurance policy paid by the insurer to the executor of decedent's estate for reasons and under circumstances to be subsequently related.

The district court embraced the findings of fact as stipulated by the parties, with the conclusion of law that plaintiff was not entitled to recover. From the judgment entered in conformity with such conclusion plaintiff appeals.

Helen L. Abdill died testate on September 24, 1945. At the time of her death she was unmarried, and left as her only surviving heirs Lucretia H. Michael, a niece, and Joseph G. C. Houghteling, a nephew. Decedent was the daughter of Ernest X. LeSeure, whose death occurred in April, 1925. The father in 1912 procured from Northwestern Mutual Life Insurance Company a policy of life insurance in the principal amount of $30,000, in which the decedent, his daughter, was named as beneficiary but who, by the terms of the policy, was precluded from effecting its surrender and from ever receiving any part of the principal amount.

Option "A" provided that the principal amount should upon the death of the insured be retained by the insurer during the life of his daughter (decedent), and that during such period she should receive an annuity of 3% per annum upon the principal amount thus retained by the insurer. This annuity, which amounted to the sum of $900.00 per annum, was paid to her by the insurer as directed. Option "A" also provided that "The Beneficiary * * * shall * * * have the right, with the privilege of revocation and change, to designate a Contingent Beneficiary or Beneficiaries whose interest shall be as expressed in, or endorsed by the Company on, this Policy * * *," provided, however, "No election, direction, designation, revocation or change shall be effective unless duly made in writing and filed at the Home Office of the Company (accompanied by the Policy for suitable endorsement) prior to or at the time this Policy shall become payable." And, "Unless otherwise directed by the designator and so endorsed by the Company on this Policy, the Contingent Beneficiary or Beneficiaries, if any, shall, upon satisfactory proof of the death of the last surviving Beneficiary, succeed to all the interest, rights and privileges then possessed by such Beneficiary * * *." It further provided: "At the death of the last surviving Beneficiary if there be no Contingent Beneficiary then living, or at the death of the last surviving Contingent Beneficiary occurring subsequently thereto, the amount retained by the Company under Option `A' will be paid to the executors, administrators or assigns of such last surviving Beneficiary or Contingent Beneficiary upon due surrender of this Policy."

Decedent made no election or designation of a contingent beneficiary. She thus remained at the time of her death, as she was at that of her father, the sole and only designated beneficiary. Upon decedent's death, the proceeds of the policy were paid by the insurance company, as it was obligated by contract to do, to the executor of her estate. Decedent by her will made no mention of the insurance policy or its proceeds but provided in a residuary clause as follows: "All the rest, residue and remainder of my estate, whether real, personal or mixed, including the proceeds of the sale of the property above mentioned, I give, devise and bequeath to the Second National Bank of Danville, Illinois, in trust however, for the following uses and purposes * * *." The insurance proceeds thus received by the executor were paid or turned over to the Second National Bank (plaintiff in the instant action), the trustee thus designated in the residuary clause of decedent's will.

The government endeavors to support the judgment upon two provisions of the Internal Revenue Code, (1) Sec. 811(a) and (2) Sec. 811(f), Title 26 U.S.C.1946 Ed., Supp. V, Sec. 811. Sec. 811(a), so far as now material, provides for the inclusion of the value at the time of death of all property, etc., "To the extent of the interest therein of the decedent at the time of his death". Sec. 811 (f), entitled "Powers of Appointment", provides, so far as here material, "(1) Property with respect to which decedent exercises a general power of appointment created on or before October 21, 1942. To the extent of any property with respect to which a general power of appointment created on or before October 21, 1942, is exercised by the decedent (1) by will * * *; but the failure to exercise such a power or the complete release of such a power shall not be deemed an exercise thereof."

The government's main reliance is upon the first provision, that is, that the decedent at the time of her death had an interest in the insurance proceeds, not in part but to their full value. It designates the second provision, relative to the exercise by decedent of a general power of appointment, as alternative. The argument in support of these two theories is overlapping and we find it difficult to discuss either without invading the confines of the other. We think it may aid in a clarification of the situation, however, if we first discuss and dispose of the government's alternative theory. The argument in support of this theory is sufficiently epitomized in its brief as follows: "The issue here is whether the insurance proceeds passed to the ultimate beneficiaries pursuant to the provisions of the insurance contract or under a power of appointment exercised by the decedent by will. That the insurance proceeds passed to the ultimate beneficiaries pursuant to the exercise of a power of appointment by will, rather than under the terms of the insurance contract, is obvious." We understand from what is stated in other portions of the government's brief that "ultimate beneficiaries" refers to the trustee created by decedent's will. In our judgment, this reasoning, as well as the premise upon which it rests, is fallacious for the reason that the decedent had no "power of appointment" which she could exercise "by will."

Paragraph (3) of subsection 811 (f) defines a general power of appointment thus: "For the purposes of this subsection the term `general power of appointment' means a power which is exercisable in favor of the decedent, his estate, his creditors, or the creditors of his estate * * *." The essentials requisite to pass property by a testamentary devise under a general power of appointment are stated by the Supreme Court in Helvering v. Grinnell, 294 U.S. 153, 155, 55 S.Ct. 354, 355, 79 L.Ed. 825, as follows: "* * * (1) The existence of a general power of appointment; (2) an exercise of that power by the decedent by will; and (3) the passing of the property in virtue of such exercise." We think it obvious that decedent had no general power of appointment and certainly she was not endowed with power to dispose of the insurance proceeds by will. This power of appointment of which the statute and the cases speak is not something to be plucked out of the air; it must be created before it can be exercised. Decedent's power, such as it was, must be found in the insurance contract between her father and the insurance company and not elsewhere.

The salient provisions of this contract have heretofore been noted and need not be repeated in detail. It is sufficient to state that the sole and only power reposed in decedent was the right to appoint a contingent beneficiary. If this power had been exercised, which it was not, the beneficiary thus appointed would have been entitled to take the insurance proceeds. And even the exercise of this meager power was limited, that is, it was required to be made in "writing and filed at the Home Office of the Company (accompanied by the Policy for suitable endorsement) prior to or at the time this Policy shall become payable." It thus appears plain that as a prerequisite to any valid change of beneficiary, decedent was...