Lamade v. Brownell, Civ. A. No. 8063.

• Decision Date: 21 September 1965
• Docket Number: Civ. A. No. 8063.
• Citation: 245 F. Supp. 691
• Parties: Howard J. LAMADE, Jr. and West Branch Bank and Trust Company, now Northern Central Bank and Trust Company, Co-Executors of the Estate of Howard J. Lamade, Deceased, Plaintiffs, v. Richard P. BROWNELL, Defendant.
• Court: U.S. District Court — Middle District of Pennsylvania

245 F. Supp. 691

Howard J. LAMADE, Jr. and West Branch Bank and Trust Company, now Northern Central Bank and Trust Company, Co-Executors of the Estate of Howard J. Lamade, Deceased, Plaintiffs, v. Richard P. BROWNELL, Defendant.

Civ. A. No. 8063.

United States District Court M. D. Pennsylvania.

September 21, 1965.

Furst, McCormick, Muir, Lynn & Reeder, Williamsport, Pa., for plaintiffs.

Louis F. Oberdorfer, Asst. Atty Gen., C. Moxley Featherston, David A. Wilson, Jr., Edward J. Snyder, Attys., Dept. of Justice, Washington, D. C., Bernard J. Brown, U. S. Atty., Scranton, Pa., for defendant.

FOLLMER, District Judge.

This is a suit for a refund of federal estate taxes collected by defendant from plaintiffs. The case was tried to the Court without a jury.

From the pleadings, the testimony, a Stipulation, the briefs and arguments of counsel, the Court makes the following:

FINDINGS OF FACT

1. The plaintiffs are Howard J. Lamade, Jr., and the West Branch Bank and Trust Company, now Northern Central Bank and Trust Company. Both are residents of Williamsport, Pennsylvania. They are and they bring this suit as the co-executors of the estate of Howard J. Lamade, who died testate at Williamsport on May 14, 1958.

2. The defendant is Richard P. Brownell who resides at 1744 Capouse Avenue, Scranton, Pennsylvania. He was the District Director of Internal Revenue in and for the District of Scranton, Pennsylvania, from September 10, 1956 to April 30, 1962.

3. On July 24, 1959, the plaintiffs timely filed with the defendant a federal estate tax return for the estate of their decedent and therewith paid to the defendant $26,914.32 in federal estate taxes. Additional federal estate taxes were paid to the defendant with respect to the estate on July 26, 1960, in the amount of $12,757.47 together with interest of $688.48.

4. Pursuant to the defendant's letter of July 25, 1960, advising the plaintiffs of an "unagreed deficiency" in the estate of Howard J. Lamade, the plaintiffs filed a protest and on February 3, 1961, paid to the defendant $5,967.43 in federal estate tax together with interest of $490.14. These amounts were paid with respect to that portion of the "unagreed deficiency" attributable to the inclusion in the gross estate of Howard J. Lamade for federal estate tax purposes of the value of an ordinary life insurance policy issued in 1955 by the Metropolitan Life Insurance Company and numbered 21,851,253A. This policy was in the face amount of $40,000.00.

5. On October 2, 1961, the plaintiffs filed a claim for refund with the defendant on Form 843 seeking a refund of the $5,967.43, together with interest. The defendant did not allow this claim.

6. On July 14, 1937 the decedent applied to the Metropolitan Life Insurance Company for a $50,000.00 term policy on his life and as of that date said insurance company issued to him policy No. 11,651,016A for $50,000.00 on a renewable convertible term plan.

7. On August 16, 1937 the decedent absolutely assigned said $50,000.00 policy and any policies which might be issued subsequently, pursuant to any right to convert said term policy, to Muriel B. Lamade, the insured's wife.

8. On August 26, 1937 the insured's wife as settlor created a revocable Insurance Trust with George R. Lamade and West Branch Bank and Trust Company as trustees in which the trust res was said original $50,000.00 term policy No. 11,651,016A.

9. In 1939 Muriel B. Lamade, the insured's wife, applied for a change in said policy into a $10,000.00 whole-life-paid-up-at-85 policy and a $40,000.00 convertible term policy on the original plan.

10. In 1939 the Metropolitan Life Insurance Company issued, pursuant to said change request by the wife, two policies, both retroactive to the original date of issue, July 14, 1937, one policy No. 12,652,575A for $10,000.00 on the whole-life-paid-up-at-85 plan and a $40,000.00 policy No. 12,652,576A still on the original convertible term plan.

11. In 1939, after the reissuance of the $10,000.00 whole-life-paid-up-at-85 policy and the $40,000.00 term policy, the reissued policies were substituted as the trust res by the insured's wife with the trustees under said Life Insurance Trust Agreement.

12. On April 8, 1949 the insured's wife revoked the Insurance Trust Agreement, designated her children, Howard J. Lamade, Jr. and Clara Anne Lamade (now Robison), as the beneficiaries on said $40,000.00 term policy and named herself beneficiary on the $10,000.00 whole-life-paid-up-at-85 policy.

13. On April 20, 1949 the insured's wife absolutely assigned said $40,000.00 term policy, No. 12,652,576A, to her children, Howard J. Lamade, Jr. and Clara Anne Lamade (now Robison).

14. On August 11, 1955 a Change Application executed by Howard J. Lamade, the insured, and Howard J. Lamade, Jr. and Clara Anne Lamade Robison, the owner-assignees, was filed with the Metropolitan Life Insurance Company directing that the policy be changed in one particular, from $40,000.00 term to 20-pay life.

15. The Metropolitan Life Insurance Company acted on said Change Application and issued as of July 14, 1955 policy No. 21,851,253A on the life of the decedent.

16. The original $50,000.00 term policy and its three successor policies were held from 1937 to the insured's death by Northern Central Bank and Trust Company and its predecessor in safekeeping for the owners of the policies.

17. The insurance company form for change of the policy executed August 11, 1955 required on its face that the insured and all assignees sign the form.

18. If the insured had refused to sign the Change Application of August 11, 1955, the insurance company would have honored the Change Application signed only by the assignee-owners, Howard J. Lamade, Jr. and Clara Anne Robison.

19. On the death of the insured on May 14, 1958, the Metropolitan Life Insurance Company paid Muriel B. Lamade, the owner of the $10,000.00 whole-life-paid-up-at-85 policy, the sum of $10,000.00 and paid to Howard J. Lamade, Jr. and Clara Anne L. Robison, the owner-assignees of the $40,000.00 20-pay life policy, the sum of $40,000.00.

20. The District Director of Internal Revenue taxed as part of the estate of said decedent $40,000.00 in proceeds of policy No. 21,851,253A issued by Metropolitan Life Insurance Company on the life of the decedent.

21. The 20-pay life $40,000.00 policy No. 21,851,253A issued as of July 14, 1955 provided in part "The right on the part of the Insured to change the Beneficiary is reserved" and also provided in part "If this policy is assigned, the rights the Insured and the Beneficiary and any contingent Beneficiary would otherwise have are subject to the rights of the assignee of record" and also provided in part "The Policy must be presented to the Company at its Home Office for endorsement of any change of Beneficiary or contingent Beneficiary except that if the right to change the Beneficiary or contingent Beneficiary has been reserved, the Company may, in its discretion, waive this requirement."

22. The absolute assignment by the Insured dated August 16, 1937 to his wife of the original policy and all policies issued pursuant to the right to convert therein was duly filed with the insurance company.

23. The absolute assignment of Muriel B. Lamade of the $40,000.00 term policy on April 20, 1949 was duly filed with the insurance company.

24. As of the date of issue on July 14, 1955 policy No. 21,851,253A for $40,000.00 was an assigned policy.

25. At the time of the execution of the Change Application in 1955 to change the $40,000.00 term policy to a $40,000.00 20-pay life policy, no discussion was had by the then owners of the policy, the son and daughter of the Insured, with anyone concerning any change in any of their rights under the policy and particularly there was no discussion by them with anyone concerning their right to change the beneficiary, to borrow on the policy, surrender the policy, elect optional settlements, or any other of their rights under the policy.

26. At the time of the execution of the Change Application in 1955, the insured's children gave no oral or written direction to any person, including the Insurance Company and its agents, to re-transfer to the insured the right to change the beneficiary or any other ownership right.

27. The decedent's children, Howard J. Lamade, Jr. and Clara Anne Robison, never reassigned the policy in question to the insured decedent.

28. The insured from September, 1937 to the date of his death in 1958 never exercised or attempted to exercise any incidents of ownership in any of the four policies above mentioned.

29. From 1938, if the decedent had attempted to change the beneficiary, borrow on the policy, cash the policy, or exercise any other incidents of ownership in the policy, the insurance company would have disregarded the attempt.

30. The insured and his children paid the 1955 annual premium on the $40,000.00 20-pay life policy, the insured paying $1,377.60 in cash and the children paying $2,175.20 by way of credit arising out of the reserve on the $40,000.00 term policy.

31. The insured paid the premiums on the $40,000.00 20-pay life policy for 1956 and 1957.

32. The insured's children paid the premiums on the $40,000.00 term policy for the years 1949 through 1954.

33. The premium to have converted the term policy to the original date of issue in 1937 would have been approximately $25,000.00.

34. The Metropolitan Life Insurance Company had in 1955 a practice, upon the conversion of a term policy, of using the standard policy form and by reference to provisions therein, attachments to prior policies in the chain, and absolute assignments of the policies, to define the rights of all persons interested in the converted policy.

35. The above practice of the Metropolitan Life Insurance Company is one which prevails generally in the insurance industry and is based upon (a) the need for reducing costs and (b) the desire to...