## Facts

- Roley Oscar Wilhoit owned a $5,000 life insurance policy; his wife, Sarah Louise Wilhoit, was the named beneficiary and Roley died without changing the beneficiary.
- On October 22, 1930, the insurer paid Sarah the net proceeds ($4,749); Sarah signed a receipt “in full for all claims” and surrendered the policy.
- Twenty-three days later, Sarah sent the insurer a letter acknowledging full settlement and directing the company to hold the proceeds “in trust,” pay her interest, and permit withdrawals (minimum $100) on demand.
- The letter also directed that any remaining balance at Sarah’s death be paid to her brother, Robert G. Owens; the company accepted the arrangement but did not establish a formal trust.
- Robert G. Owens died before Sarah; his will left his property to Thomas J. Owens but did not specifically mention the deposit arrangement.
- Sarah later died with a will purporting to dispose of the deposited insurance proceeds to her grandson, Robert Wilhoit.
- Competing claims arose between Thomas Owens (claiming through the brother named in the letter) and Robert Wilhoit (claiming under Sarah’s will).

## Issues

1. Whether Sarah’s post-payment letter was part of the insurance policy’s investment option (or a supplemental insurance agreement) or a separate deposit agreement after the policy was terminated.
2. If the letter created a separate deposit agreement, whether the payable-on-death direction to the brother was testamentary and therefore required compliance with the Statute of Wills.
3. If the payable-on-death direction was invalid, whether the fund passed to Sarah’s estate under her will rather than to the brother’s legatee.

## Decision

- The Seventh Circuit affirmed judgment for Robert Wilhoit.
- The court held the policy was fully settled and surrendered; the later letter was a separate agreement unrelated to the policy.
- The letter’s payable-on-death direction was testamentary in character because Sarah retained broad lifetime control and no present transfer to the brother took effect before her death.
- Because the letter was not executed with will formalities, the payable-on-death direction was invalid.
- The deposited funds remained Sarah’s property at death and passed under her duly executed will to Robert Wilhoit.

## Legal Principles

- Once an insurance policy is paid in full and surrendered, a later agreement concerning the proceeds is not treated as part of the insurance contract absent incorporation into the policy’s terms.
- A payable-on-death provision outside an insurance contract is generally testamentary when the owner retains full control during life and the transferee takes only at death.
- Testamentary dispositions must comply with the Statute of Wills; an informal letter directing payment at death is ineffective if it does not satisfy required execution formalities.
- When a purported payable-on-death direction fails as a testamentary act, the property remains in the decedent’s estate and passes under the decedent’s valid will (or by intestacy if no will applies).

## Conclusion

Because the insurance proceeds had been fully paid and the policy surrendered, Sarah’s later letter created only a separate deposit arrangement, and its payable-on-death direction to her brother was an invalid testamentary disposition; the fund therefore passed under Sarah’s will to her grandson.


Wilhoit v. Peoples Life Ins. Co., 218 F.2d 887 (7th Cir. 1955)