National Metropolitan Bank v. United States, 48708.

• Decision Date: 24 February 1950
• Docket Number: No. 48708.,48708.
• Citation: 87 F. Supp. 773
• Parties: NATIONAL METROPOLITAN BANK OF WASHINGTON et al. v. UNITED STATES.
• Court: U.S. Claims Court

87 F. Supp. 773

NATIONAL METROPOLITAN BANK OF WASHINGTON et al. v. UNITED STATES.

No. 48708.

United States Court of Claims.

January 3, 1950.

As Amended February 24, 1950.

Albert Philipson, Washington, D. C., Newmyer & Bress, Washington, D. C., on the brief, for plaintiffs.

Elizabeth B. Davis, Washington, D. C., with whom was Theron Lamar Caudle, Asst. Atty. Gen., Andrew D. Sharpe and Robert N. Anderson, Washington, D. C., on the brief, for defendant.

Before JONES, Chief Judge, and LITTLETON, WHITAKER, MADDEN and HOWELL, Judges.

JONES, Chief Judge.

This suit is for a refund of estate taxes paid as a deficiency assessment on the proceeds of two insurance policies. The policies were on the life of Margaret E. Kelly, who died August 30, 1943. The beneficiary was her son, John S. Kelly.

The executors timely filed a claim for refund on the ground that the policies had been applied for and all premiums paid by John S. Kelly, the beneficiary, and that the decedent did not possess any of the incidents of ownership in the policies, and that the proceeds were paid directly to the beneficiary. The claim was denied.

The question is whether the proceeds of the policies were includible in the estate of Margaret E. Kelly and subject to the tax provisions of Section 811 (g) of the Internal Revenue Code, as amended by the Revenue Act of 1942, § 404(a), 26 U.S.C.A. Int. Rev. Acts, page 332.

The facts, which are not in dispute, are briefly as follows:

In 1938 Robert W. Tharp, a life insurance salesman for The Mutual Life Insurance Company, discussed with decedent the advisability of her taking out additional life insurance. She carried only $5,000. He suggested to her that since $40,000 in life insurance was at that time exempt from the Federal estate tax she should purchase $35,000 additional.

She was not interested.

Tharp then discussed with her son the desirability of his taking out a policy on the life of his mother, calling his attention to the tax exemption provision and also mentioning the advantage of having funds available to meet debts that might arise at decedent's death.

The son decided to take out the insurance. When he informed his mother of his decision she acquiesced, but told him that if the policies were taken out he, the son, would have to pay the premiums.

After making this decision John S. Kelly arranged with his mother to come to the Office of the Kelly Lumber Company, of which she was president, and sign the application and arrange for a medical examination.

At this meeting the information necessary to fill in the blanks was obtained from decedent and her son. Tharp did not at that time fill in the blanks in the application form, but instead jotted down the information on a piece of paper. Decedent signed the form in blank. Tharp completed the application by filling in the blanks after he returned to his office. John S. Kelly told Tharp that he himself was to be the beneficiary under the policies and that arrangement was satisfactory to decedent.

In filling out the form Tharp, the company agent, of his own volition, and without any instruction from decedent or her son, inserted the word "insured" in the blank space reserving benefits, options, changes in beneficiary and other privileges.

Two life-insurance policies totaling $35,000 were issued on January 21, 1938. The policies were delivered to the son, who paid the premiums stipulated therein and placed them in his vault. When preparing to enter the military service he took the policies and other valuables from his vault, which was in his office, and turned them over to his mother for safe keeping. She wrote "Jack's" on the envelope containing the policies and placed it in her safe-deposit box where it was found at the time of her death.

Upon the death of the decedent the son turned the policies over to the insurance company which duly paid him the amount, and he deposited the proceeds in his own bank account. No portion of these funds was ever demanded of him by representatives of the estate.

To be includible in the gross estate of decedent the policies must have been (a) purchased with premiums paid directly or indirectly by decedent, or (b) it must be found that decedent possessed at her death incidents of ownership, exercisable by her alone or in conjunction with another person.

Manifestly they cannot be brought within the purview of subdivision (A) of section 811 (g). The question narrows to the application of subdivision (B) of that section.

We think that plaintiffs are entitled to recover. The unauthorized answers inserted in a life-insurance application by an insurance salesman, upon his own initiative, for his own personal reasons, will not serve to invest the insured with the "incidents of ownership" when there is no other substantial evidence of ownership or interest on the part of the insured.

From the evidence there can be no doubt that both Mrs. Kelly and her son intended these policies to be his and his alone. She made no effort to read the application or the policies. The son held the policies and paid the premiums. The mother recognized that John S. Kelly had the right to the benefits, told him that he could cash the policies or borrow on them, and told a disinterested third party that her son "could borrow on or cash in (the policies) and that he paid for it, so he could use it as he saw fit." She at no time attempted to get physical possession of the policies, and when he took the policies and other valuables out of his vault before he joined the army and asked her to keep them, she placed the policies for him in her safe-deposit box and wrote his name on the envelope, thus expressly recognizing his ownership of them.

The salesman admitted that he was not authorized or instructed to insert the word "insured" in question 13 of the application; that "in view of the fact that Mrs. Kelly had shunned the purchase of insurance on her life I had figured all these things were more or less understood and that Jack was the...