Wilson Estate
- Reporters:
- , ,
- Before:
- Opinion By Mr. Justice Allen M. Stearne
The Commonwealth has appealed from an assessment of transfer inheritance tax. The Orphans’ Court of Philadelphia, two judges dissenting, sustained exceptions to the appraisement by the register of wills. There was allowed as an exempted deduction the balance due by decedent to a bank on his note, secured by collateral consisting, inter alia, of assigned life insurance policies. The policies were on the life of settlor and were payable to designated beneficiaries. The insured reserved the right to assign and to change the beneficiaries. Settlor died. His estate was solvent. The executors paid the debt out of assets of the estate which thus released the collateral, and the policies were re-assigned. The register ruled that when the insured assigned the policies as collateral for his debt, he thereby appropriated the proceeds of the policies (to the extent of the loan) to his estate and made them part of it. The learned hearing judge rejected this contention. He ruled, however, that the trust agreement disclosed an intent by the insured to pay his debt out of the insurance proceeds. The court in banc reversed. This appeal followed.
On July 27, 1945, settlor executed an inter vivos deed of trust wherein the insurance policies were made payable
While the beneficiaries under the will and under the deed are the same individuals, the proceeds from insurance policies were not thereby blended with the assets of the estate. The same beneficiaries possess a different status under the will from that under the trust. The situation in this case is the reverse from that in Myers‘s Estate, 309 Pa. 581, 164 A. 611, and Kenin‘s Trust Estate (No. 1), 343 Pa. 549, 23 A.2d 837. In the present case the insurance proceeds were made payable to designated beneficiaries. In Myers‘s and Kenin‘s Estate, the insurance proceeds were directed to be distributed in accordance with the terms of settlor‘s will. Such designation was ambulatory. The beneficiaries could only be ascertained after death. Such a designation is necessarily testamentary in character and the proceeds form part of settlor‘s estate. Proceeds of life insurance policies made payable to designated beneficiaries are exempted from transfer inheritance tax: Act of June 20, 1919, P. L. 521, Art. I, sec. 1, as amended by the Act of June 22, 1931, P. L. 690,
The Commonwealth, in support of its contention that the insured appropriated to his estate the amount of the proceeds of the insurance necessary to pay the loan, when he assigned the policies as collateral, relies principally upon Fidelity Trust Company, Admr., v. Union National Bank of Pittsburgh et al., 313 Pa. 467, 169 A. 209. In that case the facts were exceptionally complicated. They need not be herein recited. It will suffice to state that the insured, while insolvent, made fraudulent transfers of insurance policies for the purpose of defrauding his creditors. This Court, in an opinion by Mr. Justice LINN, directed the rescission of the fraudulent transfers and that the insurance fund be paid into the estate for the benefit of general creditors. See discussion of this case by Mr. Chief Justice MAXEY in Kenin‘s Trust Estate (No. 1), supra, p. 559 et seq. In the present case there was neither allegation nor proof of fraud. The settlor merely reserved the right to change his insurance beneficiaries and to assign the policies. When he assigned the policies as collateral for his loan, he did not thereby transfer the proceeds of the policies (to the amount of the loan) to his estate and thus subject them to transfer inheritance tax.
The learned hearing judge cited and discussed Kershaw Estate, 352 Pa. 205, 42 A.2d 538. In that case a husband and wife purchased real estate, taking title as tenants by the entirety. They executed a bond and mortgage, and were therefore jointly and severally liable on the bond. The husband died. The wife thereupon became the sole owner of the encumbered real estate by survivorship. In assessing the transfer inheritance tax on the deceased husband‘s estate the widow claimed as a deduction the full amount of the bond. The Orphans’ Court allowed one half the amount of the bond as a deduction. On appeal to this Court the action of the court below
The learned hearing judge assigned as the reason for sustaining the tax assessment his opinion that the trust deed disclosed settlor‘s intent that the debt be paid out of the insurance proceeds. With this we disagree.
In the recital of the deed it is stated that the trustee is to receive the proceeds of the assigned policies of life insurance (the collateral) “after the claim or claims of the [bank] have been paid in full.” Paid by whom? If the debt was liquidated by the debtor, the trustees would receive the gross proceeds; if the principal proved insolvent then all the proceeds of the policies might be used, if necessary. If only part of such proceeds were used, it would be only the unused portion which would be returned to the trustees as part of the trust res. This is a reasonable construction of the clause which we adopt. Furthermore, the habendum in this deed was certain and definite. It does not contain the clause found in the recital. A grant in a deed cannot be diminished
Decree affirmed at the cost of appellant.