Piggott's Estate v. CIR
| Decision Date | 04 February 1965 |
| Docket Number | No. 15457.,15457. |
| Parties | ESTATE of Grant H. PIGGOTT, Deceased, David S. Piggott and Albert F. Piggott, Co-Administrators, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Court of Appeals — Sixth Circuit |
John L. King, Detroit Mich. (Berry, Moorman & King, Detroit, Mich., on the brief), for petitioners.
Edward B. Greensfelder, Jr., Dept. of Justice, Washington, D. C. (Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, David O. Walter, Edward B. Greensfelder, Jr., Dept. of Justice, Washington, D. C., on the brief), for respondent.
Before MILLER, O'SULLIVAN and PHILLIPS, Circuit Judges.
This case involves the liability of the estate of Grant H. Piggott, deceased, under the Federal Estate Tax with respect to the proceeds of an insurance policy on his life payable to his corporate employer, who paid the annual premiums called for by the policy and who had possession of the policy at the time of the decedent's death. The Tax Court held the proceeds were includable in the gross estate of the decedent for Federal Estate Tax purposes.
Except for one major fact, hereinafter discussed, there is no material dispute about the facts.
J. T. Wing & Company hereinafter referred to as the company was incorporated under the laws of Michigan on May 1, 1936. Grant H. Piggott, sometimes hereinafter referred to as the decedent, was General Manager of the business, and one of the incorporators. In 1940 he was President and a Director of the company and remained in such position until December 31, 1956, at which time he resigned as President and was elected Chairman of the Board. The company was engaged in the sale of factory and contractors' supplies, such as pliers and cutting tools. The decedent and the immediate members of his family were the largest stockholders of the company. H. A. Wentworth, who was employed by the company at the time of its incorporation, owned 250 shares of its common stock, constituting approximately 11% of the issued and outstanding voting common stock. He was in no way related to the decedent or any member or his family. From 1938 to 1952 he was Secretary of the corporation and from 1938 to 1957 he was Treasurer. He retired in 1957. During the entire period of his employment he was a Director of the corporation.
In 1936 the company borrowed a large sum of money from the Reconstruction Finance Corporation. Mr. Sutcliffe, who was assigned as the Finance Corporation's loan officer to administer the loan, voluntarily recommended that insurance be taken out on Grant H. Piggott's life for the benefit of the company, so that if anything happened to him the company would have capital to reorganize or to put someone else in his place. On December 31, 1941, the company owed the Finance Corporation $59,611.33.
On October 31, 1940, Grant H. Piggott applied for life insurance to the Home Life Insurance Company and policy No. 480812 insuring his life in the amount of $50,000.00 was issued to him on November 25, 1940. On the application for insurance Piggott designated his wife as beneficiary, if living, otherwise to his children equally. The application included the following question. "Do you reserve the right to change the beneficiary?" The word "Yes" was written in the space provided for the answer.
A second application for insurance dated November 25, 1940, specifically referred to the previous application. This application designated his wife as beneficiary, if living, otherwise in equal shares to any children then living. It also included the question, "Do you reserve the right to change the beneficiary?" The word "Yes" was typewritten in the space provided for the answer.
The policy as issued designated as beneficiary his wife, if living, otherwise in equal shares to any children then living. It also contained the following provision:
At the time this policy was issued the decedent was 49 years old.
In payment of the first premium under the policy Piggott gave to the insurance company the company's check in the amount of $250.00 and executed his promissory note in the amount of $1,947.50. The amount of the check was charged against Piggott's drawing account. On March 31, 1941, the sum of $250.00 was credited to Piggott's drawing account. All premiums under the policy during the term of the policy including the final premium paid in 1956, were paid by the company. These totaled $34,700.00. Grant H. Piggott died July 26, 1957.
On December 13, 1940, Piggott executed and delivered to the life insurance company a formal revocation of his previous designations of beneficiary under the policy and requested the insurance company to pay the proceeds due at his death to the J. T. Wing Company, its successors or assigns, as beneficiary. The designation of corporate beneficiary contained this statement:
"I hereby reserve the right to designate a new beneficiary or beneficiaries in accordance with the provisions contained in said Policy."
On December 17, 1940, the policy was endorsed "Proceeds payable in one sum to the J. T. Wing Company, a corporation of the State of Michigan, its successors or assigns." It was thereafter noticed that the name of the company was incorrectly written, and on January 4, 1950, the policy was endorsed "Notice received that the correct name of the beneficiary is J. T. Wing & Company."
A special meeting of the Directors of the company was held on February 14, 1941, at which were present Grant H. Piggott, his son, David S. Piggott, and H. A. Wentworth. In addition to other matters considered and passed upon by the Board, the minutes contained the following statement:
David S. Piggott, the son, testified that at the meeting his father advised the Board that the Reconstruction Finance Corporation's loan officer suggested that he take out the policy on his life and that he thought the company should pay for it because it was to protect the company. He also testified that Mr. Wentworth was worried by the fact the company was still pretty badly in debt and was still having a hard time meeting all of its bills, and that he didn't think that the company "needed this necessary expense" at that time.
For the years 1942 to 1956 inclusive, the books and records and the balance sheets of the company showed the cash surrender value of the policy in question, which was carried as an asset of the company. For the year 1942 it was $1,613.00. It increased in varying amounts annually thereafter and was shown in 1956 to be $20,269.50. The increases in the cash surrender values were credited against premiums paid on the policy in the years in which earned. Mr. Bower, a certified public accountant for 31 years, testified that the cash surrender value of an insurance policy that was not owned by a corporation should not and would not be listed as an asset.
On November 2, 1949, the company renewed its promissory notes with the Manufacturers National Bank of Detroit, Michigan, in the amount of $25,000.00. As collateral therefor, accounts receivable, inventory, and the policy on decedent's life were pledged. The instrument of assignment delivered to the life insurance company was attached to the policy in the form of an endorsement. It was executed by the decedent on the line designated for the signature of the insured. Following his signature is the capital letter "P," which the Tax Court found represented the word "President." The instrument was also executed by "J. T. Wing & Company" and "The J. T. Wing Company" as beneficiary, in each instance by H. A. Wentworth, Secy-Treas. The instrument was acknowledged by the decedent individually and by the company through its Secretary and Treasurer. The policy was delivered to the bank and remained in its possession as security for the company's loan obligation until the payment of the proceeds thereof following decedent's death. The instrument of assignment contained this provision:
"This assignment shall not affect any right of the insured or others to change the beneficiary or elect optional methods of settlement but the rights of the present beneficiary or any hereafter named, and of any present or future method of settlement shall in all respects be subject to the rights of said bank and shall be limited to and affect only such proceeds of said policy as remain after all claims of said bank shall have been satisfied."
Upon the death of the decedent the death benefit and post-mortem dividends due under the policy were paid by the insurance company as follows:
"The Manufacturers National
Bank of Detroit ...... $ 9,132.00
J. T. Wing & Company ... 41,171.50
_________
Total ............ $50,303.50"
None of the proceeds paid by the insurance company to the company was used to redeem the stock of the company owned by the decedent.
David S. Piggott and Albert F. Piggott qualified as Co-Administrators of the estate of Grant H. Piggott, deceased, and are hereinafter referred to as the taxpayers. They filed a Federal Estate Tax return for the decedent's estate, which included the following statement:
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