Woodward v. United States

• Decision Date: 26 June 1952
• Docket Number: Civ. No. 541.
• Parties: WOODWARD v. UNITED STATES.
• Court: U.S. District Court — Northern District of Iowa

106 F. Supp. 14

WOODWARD v. UNITED STATES.

Civ. No. 541.

United States District Court N. D. Iowa, E. D.

June 26, 1952.

COPYRIGHT MATERIAL OMITTED

Tyrrell M. Ingersoll (of Elliott, Shuttleworth & Ingersoll), Cedar Rapids, Iowa, Robert W. Clewell (of Clewell, Cooney & Fuerste), Dubuque, Iowa, for plaintiff.

T. E. Diamond, U.S. Dist. Atty., Sheldon, Iowa, Wm. B. Danforth, Asst. U. S. Dist. Atty., Sioux City, Iowa, Graham Loving, Jr., Sp. Asst. to Atty. Gen., for defendant.

GRAVEN, District Judge.

This is an action for the recovery of federal income taxes and interest claimed to have been erroneously and illegally assessed and collected. Jurisdiction is based upon 28 U.S.C.A. § 1346(a) (1). The plaintiff is a citizen of the United States and a resident of Dubuque, Dubuque County, Iowa. The amount in controversy herein does not exceed the sum of $10,000. The plaintiff is, and at all times material hereto has been, the publisher of a daily newspaper, which newspaper is a corporation in which the plaintiff owns a controlling interest.

In August, 1937, the plaintiff was the owner of five life insurance policies. Three of the insurance policies were with the Equitable Life Assurance Society of the United States. Two of the Equitable policies, in face amounts of $10,000 and $15,000 respectively, had been issued in 1926. The third Equitable policy, in the face amount of $10,000, had been issued in 1928. The Equitable policies were of the so-called "life-convertible" type. The other two policies were with the Mutual Benefit Life Insurance Company, in the face amounts of $15,000 and $75,000 respectively. They were taken out by the plaintiff on August 2, 1937, and were of the ordinary life type. The plaintiff's executors or administrators were the named beneficiaries in each of the five insurance policies. In each policy the plaintiff had reserved the right to change the beneficiary thereof. On August 18, 1937, the plaintiff executed instruments with respect to the two Mutual Benefit policies which have been referred to by the parties as "assignments." The two instruments were identical except for the policy numbers appearing thereon, and were as follows:

"August 18, 1937

"The Mutual Benefit Life Insurance Company is hereby requested to change the Beneficiary under Policy No.____ on my life, by making the policy payable to Elsie M. Woodward, my wife, her executors, administrators or assigns, and to make the proceeds payable at maturity in one sum.

"I hereby relinquish the right to exercise any rights or options heretofore retained.

"I desire that Elsie M. Woodward shall have the right during her lifetime to exercise the following rights and options, without the consent of any other person. If (e), (f), (g) and (h), or any of them, be so exercised, she is to receive all benefits arising therefrom.

"(a) Change of Beneficiary (b) Loans to pay premiums "(c) Reinstatement (d) Settlement Options "(e) Surrender Options (f) Cash Loans "(g) Dividend Rights (h) Receipt of proceeds prior to Maturity as Endowment of Policy

"I desire that Elsie M. Woodward shall have the above right to change the Beneficiary at any time and from time to time while the Policy or any extended insurance shall be in force and not assigned, upon return of the Policy to the Company at its office in Newark, New Jersey, with her written request for the appropriate indorsement of the Policy by the Company.

"Witness /s/ Irving H. Welch /s/ Fred W. Woodward

"I hereby accept the above and reserve the rights and options as above provided.

"Witness /s/ Irving H. Welch /s/ Elsie M. Woodward"

The two Mutual Benefit policies had no cash surrender value at the time these instruments were executed. On September 14, 1937, Elsie M. Woodward executed requests with respect to the two Mutual Benefit policies that the beneficiary under such policies be herself, if living at the time of the insured's death, otherwise her son F. Robert Woodward, if living at the time of the insured's death, otherwise M. Jeanne Woodward (F. Robert Woodward's wife), if living at the time of the insured's death, otherwise Elsie M. Woodward's executors, administrators, or assigns.

On September 13, 1937, the plaintiff executed instruments with respect to each of his three Equitable policies which have been referred to by the parties as "assignments," and which were as follows:

"Request for Change of Policy "To the Equitable Life Assurance Society of the United States

"Application is hereby made to make the following change in Policy Nos. ____ by endorsement on said policies: "changing beneficiary to the Insured's executors or administrators thereafter cancelling said policies and issuing in place thereof policies on the Corporate and Absolute Owner form with all rights vested in Elsie M. Woodward, wife of Fred W. Woodward, her executors or administrators.

"Special Beneficiary: the Special Beneficiaries as named in the Special Provision attached hereto bearing date of this request and in accordance therewith.

* * * * * *

"Dated at Dubuque Sept. 13, 1937

"/s/ Fred W. Woodward "Insured."

Attached to each of these instruments was a special provision providing that the beneficiaries should be Elsie M. Woodward, if living at the time of the insured's death, otherwise F. Robert Woodward, if living, otherwise M. Jeanne Woodward, if living, otherwise the children of F. Robert and M. Jeanne Woodward, if living, otherwise the executors or administrators of Elsie M. Woodward. The special provision was in each case dated September 13, 1937, and signed by the plaintiff.

The plaintiff filed a federal gift tax return for the year 1937 listing the assignment of the Equitable policies as a gift to Elsie M. Woodward in the total amount of $13,474.50. The Mutual Benefit policies were listed as a gift to Elsie M. Woodward of no value.

Subsequent to the assignment of the five policies, the plaintiff continued to pay the premiums on the policies. It does not appear who had possession of them subsequent to the assignments.

In the fall of 1939 the plaintiff decided to set up a trust of which his wife would be an income beneficiary. He testified that he believed that setting up a trust would make for benefit and protection to his wife. The plaintiff discussed with his wife the setting up of the trust. The plaintiff wished the trust corpus to include, in addition to certain shares of corporate stock, the five life insurance policies heretofore referred to.

On December 28, 1939, the plaintiff executed a promissory note payable on demand to Elsie M. Woodward in the amount of $5,098. On January 31, 1940, the plaintiff executed a promissory note payable on demand to Elsie M. Woodward in the amount of $16,748.52. On February 16, 1940, the plaintiff executed a promissory note payable on demand to Elsie M. Woodward in the amount of $2,159.69. The notes indicated that they were to bear interest at the rate of 4 per cent per annum. No collateral was given by the plaintiff to Elsie M. Woodward to secure the payment of any of the notes. The plaintiff testified that he recalled handing the notes to Elsie M. Woodward. It appears that the three notes referred to were in a total amount corresponding to the then total cash surrender value and dividend accumulations of the five life insurance policies heretofore referred to. The note which was in the amount of $16,748.52 was cancelled in 1944 and six smaller notes in the same total amount were substituted therefor. On December 28, 1939, the plaintiff and Elsie M. Woodward wrote the following letter to the Mutual Benefit Life Insurance Company in relation to the two Mutual Benefit policies heretofore referred to:

"Gentlemen: Re Policies Nos. ____

"The undersigned owner, Elsie M. Woodward, and the undersigned insured, Fred W. Woodward, join in requesting that all present beneficiary provisions now in effect with respect to the above policies be and are hereby cancelled and in lieu thereof, there shall be provided that the estate of the insured shall be the death beneficiary.

"Attached hereto you will also please find an assignment, reassigning all right, title and interest in and to the above numbered policies to the insured, Elsie M. Woodward the present owner thereunder relinquishing every right that she may have in said policies.

"Yours very truly "/s/ Elsie M. Woodward "Elsie M. Woodward, Owner "/s/ Fred W. Woodward "Fred W. Woodward, Insured."

The assignment referred to in such letter read as follows:

"This Assignment and Agreement executed this 28th day of December, 1939 by and between Elsie M. Woodward as assignor, and Fred W. Woodward as assignee, Witnesseth:

"For $5,098.00 the receipt whereof by the assignor is hereby acknowledged, the assignor hereby assigns, sells, transfers and conveys to Fred W. Woodward, assignee, the following life insurance policies issued by the Mutual Benefit Life Insurance Company upon the life of said Fred W. Woodward, namely, Policy No. 1775151 in face amount of $75,000, and Policy No. 1775152 in face amount of $15,000, including all rights, title and interest of any and every kind which the assignor has or may have in or to said policies and in or to the proceeds thereof.

"In witness whereof the parties hereto affix their signatures.

"/s/ Elsie M. Woodward "Owner "/s/ Loretta Knopf "(Witness) "/s/ Fred W. Woodward "Insured"

On January 30, 1940, Elsie M. Woodward executed the following assignment with respect to each of the Equitable policies heretofore referred to:

"For One Dollar, to me in hand paid, and for other valuable considerations (the receipt of which is hereby acknowledged) I hereby assign, transfer and set over Policy No. ____ on the life of F. W. Woodward, my husband issued by the Equitable Life Assurance Society of the United States with all rights therein, and with all money now or hereafter due or payable thereon, and all dividends, options, benefits or advantages derived therefrom, including the right to

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