Docket No. 99676.
11-14-1940
ESTATE OF STUART WILSON, DECEASED, STELLA M. WILSON, EXECUTRIX, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Franklin M. Tomlin, Esq., for the petitioner. William G. Ruymann, Esq., for the respondent.
Franklin M. Tomlin, Esq., for the petitioner.
William G. Ruymann, Esq., for the respondent.
This proceeding involves estate taxes in the amount of $252.11, in which amount deficiency was determined by the Commissioner. From allegations duly admitted in the pleadings and documentary evidence adduced we make the following findings of fact.
FINDINGS OF FACT.
1. Stuart Wilson was a teacher employed by the board of education of the city of New York. He had been appointed to a position in the school system on October 22, 1897. During his lifetime he participated in and contributed to "The Teachers' Retirement Annuity Savings Fund," which was a fund designated in the Greater New York charter as the "retirement system." Prior to his death he had contributed a sum which, together with interest thereon as provided by the system, amounted on the date of his death to $4,517.01.
2. Stuart Wilson died January 19, 1937, leaving a last will and testament, and letters testamentary were issued to Stella M. Wilson. At the time of death he was principal of Public School No. 141, Borough of Queens.
3. On June 14, 1929, Stuart Wilson executed a "Designation of Beneficiary", by which he requested and authorized the teacher's retirement board of the city of New York to pay, in the event of his death prior to retirement on pension, the accumulated salary deductions and a death benefit also provided by the system, to his wife, Stella T. Wilson, who is the same person as Stella M. Wilson.
4. After the death of Stuart Wilson and on February 17, 1937, his wife executed a "Selection of Benefits under Option A", thereby electing "to have the actuarial value of the amount of the accumulated salary deductions payable and the death benefit allowable" paid to her in monthly installments during life.
5. The actuary of the teachers' retirement fund reported that payments of benefits under option A, beginning April 1, 1937, would be as follows:
--------------------------------------------------------------- | | Monthly Benefit | Total amount | amount ---------------------------------------|--------------|-------- Accumulated deductions _______________ | $4,517.01 | $26.15 Ordinary death benefit _______________ | 20,558.01 | 119.03 |______________|________ Total ____________________________ | 25,075.02 | 145.18
On March 23, 1937, the teachers' retirement board authorized payment to Stella T. Wilson under option A.
6. Title B of chapter 20 of the Administrative Code for the City of New York provides, in part, as follows: That all teachers employed by the city of New York are contributors to the retirement system; that the administration of the system is vested in the retirement board, the members of which are trustees of the funds created by the Retirement Act, which include: (1) an annuity savings fund, and (2) a pension reserve fund; that the city shall contribute to the pension reserve fund; that the annuity savings fund shall consist of the accumulated deductions from the salaries of contributors under such rules and regulations as the retirement board shall prescribe; that the contributor can elect to have deducted from his salary either (1) 3 percent thereof, or (2) such percentage as with interest when paid until age 65 will provide upon retirement at that age an annuity which added to the pension (also provided by the same title) a retirement allowance of 50 percent of his average salary; or (3) a percentage of his earnable salary greater than 3 percent; that in case a contributor resigns from his position, or is dismissed therefrom, he shall be paid forthwith the full amount of the accumulated deductions standing to the credit of his individual account in the annuity savings fund; that after 35 years' service a contributor could retire on pension and withdraw the accumulations with interest; that a contributor might at any time file with the retirement board his election (under option A as well as other options) to have his accumulated salary deductions paid, in the event of his death, in an annuity in monthly installments throughout the life of a beneficiary named by him; that a teacher after having been a contributor for three years might borrow not exceeding 25 percent of his accumulated deduction, to be repaid within three years by additional deductions from compensation as paid; that retirement allowances provide for (1) a pension, and (2) "An annuity in addition to the pension, which shall be the actuarial equivalent of his accumulated deductions at the time of his retirement"; that the retirement system was under the supervision of the Department of Insurance, so far as applicable thereto and not inconsistent with title B of chapter 20 of the Administrative Code of the City of New York.
OPINION.
DISNEY:
The petitioner contends that the sum of $4,517.01, payable to the decedent's wife in monthly installments was erroneously included by the Commissioner in decedent's estate because it was insurance within the intent of section 302 (g) of the Revenue Act of 1926, as amended.
SEC. 302 as amended by section 404 of the Revenue Act of 1934. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside the United States —
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(c) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, * * *
(d) (1) To the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona-fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity exercisable) by the decedent alone or by the decedent in conjunction with any other person (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate, or where any such power is relinquished in contemplation of decedent's death.
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(g) To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life.
The respondent's position is that the amount is not insurance, but was properly included in decedent's gross estate and was transferred from the decedent to his wife within the meaning of section 302 (c) or (d) of the Revenue Act of 1926, as amended.
See footnote No. 1, supra.
Examination of the circumstances and provisions under which the amount in controversy was accumulated and paid to decedent's wife discloses that the money, except interest allowed, was subtracted from the decedent's salary over a period of years, that in case of his resignation or dismissal he had a right to draw the sums accumulated and interest; that upon October 27, 1932, he had served for 35 years and thereafter had a right to retirement on pension and to withdraw the accumulations with interest. The designation of his wife as beneficiary provided that she be paid the sums involved in the event of his death prior to retirement on pension. It thus appears that both prior to the completion of 35 years' service, by resignation or dismissal, and after such period by voluntary retirement on pension, the petitioner was in a position to assume command of the moneys, within the thought expressed in Corliss v. Bowers, 281 U. S. 376, and therefore the funds constituted his property at the date of his death; moreover that any transfer effected by the designation of beneficiary being effective only upon his death prior to retirement upon pension, was, after the expiration of the 35 years' service, several years prior to his death, subject to his power to revoke and terminate by the voluntary act of retirement upon pension. In the light of the decedent's power at all times over the fund, it is plain, we think, that any transfer intended by the designation of beneficiary was intended to be effective only at death. Had he retired upon pension, the designation of beneficiary would have become of no effect. Only absent such retirement could the beneficiary collect? It is to be noted that the respondent did not include the "death benefit" in gross estate and that the controversy arises only as to the salary deductions accumulated in the annuity savings fund at the death of the decedent, plus interest. It is seen from the treatment accorded by the actuary that the two funds were separately considered. To the one the city contributed; to the other, only the decedent, except to the extent of interest allowed, by deductions from his salary. In Kernochan v. United States, 89 Ct. Cls. 507; 29 Fed. Supp. 860, the Court of Claims considered this question as to insurance or property includable in gross estate, in the case of a member of the city employees' retirement system of the city of New York. Examination of that case reveals no material difference in the facts from those here involved. There as here the employee died before retirement, after amounts had been deducted from his salary as contributions to the retirement system, and his wife was entitled to a return of the amounts deducted, with interest. The decedent had, as herein, nominated his wife as beneficiary to receive payment of the accumulations "in the event of my death prior to retirement on pension." Likewise as herein, he also named his wife as beneficiary of the death benefit. In short, the system as to employees there involved seems upon the same model as that involved here as to teachers. The court, after extensive examination of the facts and consideration of the same Federal tax statute here involved, held that the fund was not insurance, but was an asset of the decedent's estate and properly included in decedent's gross estate.
The petitioner cites to us In re Estate of Mary V. Fitzsimmons, 158 Misc. 789; 287 N. Y. S. 171; affd., 248 App. Div. 862, which, like the present proceeding, involved the teachers' retirement system and where the New York courts held that the amount received was, as insurance, exempt from the New York estate tax. That case was cited to the Court of Claims in the Kernochan case, supra. The court stated: "It does not appear that any attempt was made in that case to differentiate between the amount refunded and the amount paid as a death benefit", and that the point raised in the Kernochan case was not raised in the New York case. Though apparently urged, as we are, to hold that the state court decisions were binding, the Court of Claims held otherwise, citing Lyeth v. Hoey, 305 U. S. 188, and Burnet v. Harmel, 287 U. S. 103. We agree that the definition of what is insurance is a question for the Federal courts and for this Board, and that we are not bound by the Fitzsimmons case. We conclude and hold that the $4,517.01 was not insurance within the purview of section 302 (g) of the Revenue Act of 1926, as amended, and that the Commissioner did not err in including the amount in the gross estate of decedent, under section 302 (c) and (d) of the same act.
Decision will be entered for the respondent.