First Nat. Bank of Blue Island v. Philp's Estate

• Decision Date: 28 April 1982
• Docket Number: No. 81-2005,81-2005
• Citation: 436 N.E.2d 15,62 Ill.Dec. 433,106 Ill.App.3d 360
• Parties: , 62 Ill.Dec. 433 FIRST NATIONAL BANK OF BLUE ISLAND, Respondent-Appellant, v. ESTATE OF Thomas PHILP, Petitioner-Appellee
• Court: United States Appellate Court of Illinois

Page 15

436 N.E.2d 15

106 Ill.App.3d 360, 62 Ill.Dec. 433

FIRST NATIONAL BANK OF BLUE ISLAND, Respondent-Appellant, v. ESTATE OF Thomas PHILP, Petitioner-Appellee.

No. 81-2005.

Appellate Court of Illinois, First District, Third Division,

April 28, 1982.

Thomas G. Vent and Hyman K. Bielsky, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, for respondent-appellant.

Feiwell, Galper & Lasky, Ltd., Chicago, (Barbara J. Vrdolyak, Chicago, of counsel), for petitioner-appellee.

McNAMARA, Justice:

Petitioner, the administrator of the estate of Thomas Philp, brought these citation proceedings seeking a turnover order with regards to the proceeds of an individual retirement account established by the decedent with the respondent First National Bank of Blue Island as custodian. The trial court denied the bank's motion to quash the citation proceedings and ordered the bank to turn over the proceeds of the I.R.A. to the estate. On appeal the bank contends that it was entitled to set off the proceeds of the I.R.A. against the general indebtedness of the depositor upon the depositor's death.

On December 31, 1975, decedent established an I.R.A. with the bank as custodian. The I.R.A. designated decedent's wife as the beneficiary and, in the event that she predeceased decedent, recited that the proceeds would pass to the estate. On January 3, 1978, decedent and his wife died in an airplane crash. There is no evidence that either party survived the other.

During decedent's lifetime, he incurred certain debts to the bank as evidenced by various promissory notes. The notes contained the following language:

"The holder has a security interest for the payment of all obligations due it in all property and assets of Debtor which are in the possession or control of Holder and a right of set-off or lien on any deposit or sums now or hereafter owed by Holder to Debtor."

In July 1979, the bank attempted to set off the proceeds of the I.R.A. against the indebtedness of the decedent under three promissory notes. These proceedings ensued, and the trial court directed the bank to distribute the I.R.A. proceeds to the estate in accordance with the beneficiary clause of the I.R.A. agreement.

An I.R.A. is defined as a trust created or organized for the exclusive benefit of an individual or his beneficiaries. (Internal Revenue Code, Pub.L.No. 94-455, 90 Stat. 1834 (codified at 26 U.S.C. § 408(a) 1976).) The code also provides that the trustee must be a bank; that the interest of the individual in the balance of the account is nonforfeitable; and that the assets of the trust will not be commingled with the other property, except in a common trust fund or common investment fund. (Sec. 408(a)(2), (4), (5).) The I.R.A. agreement in the present case contained the following pertinent provisions:

"Article III. No part of the custodial funds shall be invested in life insurance contracts, nor may assets of the custodial account be commingled with other property except in a common trust fund.

Article IX(1). Depositor's contribution shall be held by the custodian in a savings account or certificate of deposit as the Depositor may direct. All contributions shall be held in the name of the Depositor and shall not become mingled with other such accounts or property. All interest shall be credited to the Depositor's custodial account.

Article IX(2). The Depositor shall not have the right to assign transfer or pledge any interest in his account and the Depositor's interest in the account shall not be subject to any claims of creditors."

The I.R.A. agreement also provided that the depositor's interest in the account shall be nonforfeitable.

On appeal the bank maintains that it was...