Armistead, In re

• Decision Date: 14 January 1952
• Docket Number: 42331,Nos. 42329,No. 1,s. 42329,1
• Citation: 362 Mo. 960,245 S.W.2d 145
• Parties: In re ARMISTEAD. In re BAER
• Court: Missouri Supreme Court

Page 145

245 S.W.2d 145

362 Mo. 960

In re ARMISTEAD.

In re BAER.

Nos. 42329, 42331.

Supreme Court of Missouri, Division No. 1.

Jan. 14, 1952.

As Modified Feb. 6, 1952.

William H. Charles, St. Louis, Lowenhaupt, Waite, Chasnoff & Stolar, St. Louis, of counsel, for appellant.

J. E. Taylor, Atty. Gen., Robert R. Welborn, Asst. Atty. Gen., for respondent.

LOZIER, Commissioner.

Two appeals by taxpayers from judgments affirming findings and decisions of the state tax commission have been consolidated. As construction of constitutional provisions and of the revenue laws of this state are involved, the appeals are properly here. Sec. 3, Art. V, 1945 Const., V.A.M.S.

The initial issues are: Whether the beneficiary of a life insurance policy has a 'beneficial interest' in the proceeds of the policy 'retained by' or 'left on deposit with' the insurer after the death of the insured; and whether such proceeds are 'moneys on deposit' as that term is used in the Intangible Personal Property Tax Act. Appellants also contend that that law is void for uncertainty and, as applied here, is unconstitutional.

Appellant Alice J. Armistead is the widow of Thomas B. Armistead who died in 1937. Appellant Agnes F. Baer is the widow of Harold M. Baer who died in 1943. Each appellant was the beneficiary in life insurance policies in which her husband was the insured. In Mrs. Armistead's case, she 'took out' three of the policies and her husband 'took out' the other three. In Mrs. Baer's case, Mr. Baer 'took out' all four policies. After the deaths of the insureds, the insurer companies 'retained' or 'held,' or the beneficiaries 'left with' or 'deposited with' the companies, the proceeds of the policies. We shall refer to these as the 'retentions.' By virtue of the retentions, the companies have made, and will make to appellants for life, monthly or semi-annual payments. During calendar 1946, Mrs. Armistead received $4275.84, and Mrs. Baer, $3152.48. The instant appeals involve these retentions and the installment payments made thereunder during calendar 1946.

The retentions were under policy provisions for optional methods of settlement or payment of the policy proceeds, and under options exercised either by the insured prior to, or by the beneficiary after, the death of the insured. After the insured's death, the companies issued what we shall call 'retention agreements.' In the retention agreements, the companies acknowledged receipt of the proceeds and agreed to pay the life beneficiary a fixed rate of interest thereon, plus such annual dividends or additional interest as might be determined by the company. Payments were to be made monthly or semi-annually to appellants, respectively, for life and thereafter to their respective children or their descendants. With one exception in Mrs. Armistead's case, neither appellant has a right to withdraw the principal sum or any part thereof. In one instance in Mrs. Armistead's case, and in all four instances in Mrs. Baer's case, the life beneficiary cannot assign, transfer or encumber the payments and the payments are not subject to creditor's claims, except to the extent permitted by law.

In all instances in Mrs. Baer's case, and in five of the six instances in Mrs. Armistead's case, the balances of the funds are payable to the estate of the life beneficiary in the event she survives her children and their descendants. There was no such provision in the instance where Mrs. Armistead reserved the right of withdrawal of all or part of the funds.

In the last mentioned instance, a policy provision entitled Mrs. Armistead, as 'the beneficiary entitled to receive such proceeds,' to exercise the option 'when the same became payable.' She selected the option, 'Proceeds Left at Interest,' Which read in part: 'The proceeds of this policy, or any part thereof, may be left with the company and the company will pay interest thereon.' She elected to have the installments paid to her for life and thereafter to her children, and retained the right, for herself and her children, to withdraw at any time all or any part of the 'funds then retained by' the company.

The captions and wording of the retention agreements varied. One, captioned 'Supplementary Contract Issued in Settlement of Amount Due Payee Under or on Account of Policy No. 995880,' recited that the 'sum due under said policy is applied as a principal sum at interest under Option Two (Left On Deposit At Interest).' Option Two read that the proceeds 'shall be left on deposit.' Two of the retention agreements, captioned 'Special Settlement Agreement,' and 'Interest Income Certificate,' respectively, recited that the proceeds 'shall be retained.' In three, each captioned 'Supplementary Contract Deposit Bearing Interest,' the principal sum was '(herein called the deposit) being the proceeds of the policy,' and the company agreed 'to hold the deposit.' In one, uncaptioned, the company 'acknowledges itself bound' for the amount of the proceeds and agreed that 'said amount shall be held.' In another, captioned 'Certificate of Deposit No. 91646,' the company 'acknowledges receipt' of the proceeds of three policies.

The law involved is the Intangible Personal Property Tax Act, 1945 Laws, p. 1914, Secs. 11456.1 ff., Mo.R.S.A., now substantially Chapter 146, Mo.R.S.1949, Secs. 146.010-146.130, V.A.M.S. We shall refer to this law as 'the Act.' (Our references to Missouri statutes will be to Mo.R.S.1949, V.A.M.S., unless otherwise indicated.) The tax is a property tax levied upon specified intangible personal property and is based upon the property's yield during the preceding calendar year at the rate of 4% of such yield. Sec. 146.020. Taxable 'intangible personal property' includes 'money[s] on deposit'. Sec. 146.010. One having a 'beneficial interest' is liable for the tax. Sec. 146.030.

Neither appellant made the tax return provided for by Sec. 146.050. Acting under the provisions of Sec. 146.180, the director of revenue assessed appellants for 1947 taxes amounting to 4% of the installment payments each had received during 1946; and found and decided that appellants, receiving interest from proceeds left on deposit with the companies, had such beneficial interests as would subject them to liability for the tax. Upon appellants' appeals to the state tax commission, respondent herein, the director's findings and decisions were affirmed. Secs. 146.080 and 138.430. Upon review, the circuit court affirmed respondent's findings and decisions.

Appellants assert that: 'the beneficiary's right to interest does not stem from new and independent agreements of deposit, but stems from the policies themselves,' citing Bronson v. Glander, 149 Ohio St. 57, 77 N.E.2d 471. While the facts there are similar to those in the instance in which Mrs. Armistead exercised the option, that case is not in point. As will appear, the Ohio law expressly taxes both 'annuities' and 'deposits' in which a person has a 'beneficial interest,' and, just as expressly, excludes 'contracts of insurance and dividends paid or applied thereunder.' The holding was that installment payments similar to those here involved were not 'annuities.' But we do not think that it is material whether the election, whereby the beneficiary is to receive the income for life, was made by the insured or by the beneficiary. The natures of the retentions and of the retention agreements are the same, no matter which exercised the option. So, the questions are: Did appellants have 'beneficial interests' in the retentions and are the retentions 'moneyson deposit' as that term is used in Sec. 146.010?

There is no merit in appellants' contention that they have no 'beneficial interest' in the retained funds. We can disregard the fact that, in every instance except one, the balance of the proceeds are payable to the beneficiary if she survives her children and their descendants. The right to receive the income, the installment payments, during life is a property right in the principal itself. Appellants acquired a vested interest in the insurers' performance of the terms of the policies, including any rights to exercise options. See Latterman v. Guardian Life Ins. Co. of America, 280 N.Y. 102, 19 N.E.2d 978, 979, 127 A.L.R. 450, wherein it was said that the beneficiary's right to exercise the option (to have the company retain the proceeds and pay interest thereon) was 'an interest * * * in the nature of a property right.' See also Commonwealth ex rel. Martin, Commissioner of Revenue v. Sutcliffe, 283 Ky. 274, 140 S.W.2d 1028; Harker v. Evatt, 140 Ohio St. 346, 44 N.E.2d 355.

In Rowe v. Braden, 126 Ohio St. 533, 186 N.E. 392, 395, it was said that the 'equitable interest' of a resident beneficiary under a trust '* * * is the property right belonging to the resident beneficiary, measured by the income, which is taxed in Ohio * * *.' In other states, the tax has been held applicable to the equitable interest of a resident beneficiary of a trust. Commonwealth v. Stewart, 338 Pa. 9, 12 A.2d 444, affirmed 312 U.S. 649, 61 S.Ct. 445, 85 L.Ed. 1101 ('equitable interest'); Commonwealth v. Sutcliffe, supra ('beneficial owner,' 'equitable title').

Appellants cite Owens v. Fosdick, 153 Fla. 17, 13 So.2d 700. The court there felt that, under the terms of that particular trust, the beneficiary had a vested beneficial interest in the income only rather than in the trust estate itself; and that a tax on such interest was in the nature of a tax on income. That case is inapplicable as it is bottomed upon Florida's constitutional prohibition against state income taxes. Art. IX, Sec. 11, Fla.Const. F.S.A.

The Act does not define 'moneys on deposit.' Appellants say 'it is doubtful' that the instant retentions are 'moneys'; that 'moneys' means cash or the equivalent of cash. They cite Mann v. Mann, 14 Johns., N.Y., 1, 7 Am.Dec. 416, an opinion by Chancellor Kent. Respondents cite Jenkins v. Fowler, 63 N.H. 244. The two ...