Coleman's Estate, In re, 9381

• Decision Date: 16 September 1957
• Docket Number: No. 9381,9381
• Citation: 317 P.2d 880,132 Mont. 339
• Parties: Matter of the ESTATE of Frank D. COLEMAN, Deceased. STATE of Montana, Appellant, v. The MIDLAND NATIONAL BANK OF BILLINGS, Montana, as Executor of the Last Will and Testament of Frank D. Coleman, Deceased, Respondent.
• Court: Montana Supreme Court

Page 880

317 P.2d 880

132 Mont. 339

Matter of the ESTATE of Frank D. COLEMAN, Deceased.

STATE of Montana, Appellant, v. The MIDLAND NATIONAL BANK OF BILLINGS, Montana, as Executor

of the Last Will and Testament of Frank D.

Coleman, Deceased, Respondent.

No. 9381.

Supreme Court of Montana.

Sept. 16, 1957.

Rehearing Denied Dec. 2, 1957.

Arnold H. Olsen, Atty. Gen., Forrest H. Anderson, Atty. Gen., Vera Jean Heckathorn, Asst. Atty. Gen., H. O. Vralsted, Sp. Asst. Atty. Gen., Lyman J. Hall, Tax Counsel, Board of Equal., Missoula, for appellant.

H. O. Vralsted, Sp. Asst. Atty. Gen., argued orally for appellant.

Coleman, Jameson & Lamey, Billings, for respondent.

H. J. Coleman, Billings, argued orally for respondent.

CASTLES, Justice.

This is an appeal by the State of Montana, through the State Board of Equalization, from the orders of the district court of the thirteenth judicial district determining the inheritance tax payable on account of the death of Frank D. Coleman.

Coleman died on February 10, 1952. At that time he was the owner of life insurance policies on his life, proceeds of which aggregated $50,462.65, and an annuity policy, proceeds of which amounted to $2,813.61 and under which he was then receiving monthly installment payments guaranteed to continue so long as he lived and in any event for a period of years certain.

The designated beneficiary in all policies, including the annuity, was the Midland National Bank of Billings, Montana, as trustee, under an agreement dated January 17, 1949, between the deceased Coleman and the Midland National Bank, as amended by an agreement between them dated September 26, 1950. The Midland National Bank is respondent herein.

The amended agreement of Septmber 26, 1950, recites that the deceased Coleman has designated respondent bank as the beneficiary in the policies, and had delivered them to respondent for safekeeping so that it may collect and receive the proceeds upon Coleman's death.

The respondent bank had no interest in th policies except the delivery for safekeeping, and the deceased Coleman reserved solely unto himself, during his lifetime, all the powers of absolute ownership including the right to borrow money on the policies, the right to surrender the policies for cash, and the right to change the beneficiary in any of the policies. Coleman also reserved the unqualified and unconditional power to amend the trust agreement at any time or to revoke it in toto and have the policies returned to him.

The respondent bank, as trustee, was upon Coleman's death to collect and receive the proceeds of the policies, including the annuity, and hold the proceeds in trust, pursuant to the agreement, for the use and benefit of Coleman's wife during her lifetime. Thereafter respondent was to distribute any proceeds remaining in the trust to relatives of Coleman named as remaindermen.

Coleman executed his last will on September 20, 1951, in which, after leaving his bank account to his wife, he devised and bequeathed all the rest of his property to respondent bank, as trustee under the terms of the aforesaid agreements dated January 17, 1949, as amended by the agreement of September 26, 1950. This will was duly admitted to probate and letters testamentary issued to respondent as executor.

So far as is important to this decision, the facts then are these: An amended 3-A report and petition to have inheritance tax determined was filed showing the proceeds of the life insurance policies and other property as follows: Proceeds of life insurance policies $50,462.65, proceeds of annuity policy $2,813.61, other property not in dispute $34,899.28 for a total gross estate of $88,175.54. The inventory and appraisement deducted from the proceeds of the policies of insurance, both insurance and annuity, the sum of $50,000 as exempt life insurance proceeds, leaving $38,175.54 as the total appraised value of the estate for inheritance tax.

The appellant, State Board of Equalization, sets up twenty-two specifications of error. However, as we view the case there is a single question which is determinative of the question involved. That question is under R.C.M.1947, Sec. 91-4406, providing as follows: 'Insurance part of estate. All insurance payable upon the death of any person over and above fifty thousand dollars ($50,000.00), shall be deemed a part of the property and estate passing to the person or persons entitled to receive the same and if payable to more than one person the said fifty thousand dollars ($50,000.00) exemption shall be prorated between such persons in proportion to the amount of insurance payable to each.'

Is the respondent bank eligible to take an insurance exemption of the first $50,000 of the life insurance proceeds? The appellant claims that notwithstanding the provisions of section 91-4406, since the insurance proceeds were paid to respondent, the beneficiary named in the policies, as trustee, under the agreement of January 17, 1949, as amended, the entire proceeds are taxable under R.C.M.1947, Sec. 91-4402, as a transfer in contemplation of death or as a transfer intended to take effect in possession or enjoyment at or after death.

At the outset, it should be pointed out that R.C.M.1947, Secs. 91-4401, 91-4402 and 91-4406, were, when enacted, subsections of section 1, chapter 65, Session Laws of 1923. The interrelationship is shown by setting out the relevant portions of section 1 as follows:

'Section 1. How and When Imposed. A Tax * * * is hereby imposed upon any transfer of property, * * * or any interest therein, or income therefrom in trust or otherwise, to any person, * * * except as hereinafter provided:

'(1) By a Resident of State. When the transfer is by will or by intestate laws * * *

'(3) In Contemplation of Death. When the transfer is of property * * * by deed, * * * or gift, made, in contemplation of the death of the * * * donor, or intended to take effect in possession or enjoyment at or after such death. * * *

'(7) Insurance Part of Estate. All insurance payable upon the death of any person over above fifty thousand Dollars ($50,000) shall be deemed a part of the property and estate passing to the person or persons entitled to receive the same and if payable to more than one person the said fifty thousand dollars ($50,000) exemption shall be pro-rated between such persons in proportion to the amount of insurance payable to each. * * *' Emphasis supplied.

It is seen immediately that section 91-4406, hereinbefore quoted as subsection 7 of section 1, chapter 65, Session Laws of of 1923, is entitled 'Insurance part of estate' and is a specific ...