Belefski's Estate, In re

• Decision Date: 23 January 1964
• Citation: 413 Pa. 365,196 A.2d 850
• Parties: In re ESTATE of Mary M. BELEFSKI. Appeals of the COMMONWEALTH of Pennsylvania. In re ESTATE of Helen I. ELWARD.
• Court: Pennsylvania Supreme Court

Page 850

196 A.2d 850

413 Pa. 365

In re ESTATE of Mary M. BELEFSKI Appeals of the COMMONWEALTH of Pennsylvania In re ESTATE of Helen I. ELWARD.

Supreme Court of Pennsylvania.

Jan. 23, 1964.

Vincent X. Yakowicz, Deputy Atty. Gen., Harrisburg, Walter E. Alessandroni, Atty. Gen., Harrisburg, for the Commonwealth.

Albert N. Danoff, Wilkes-Barre, Patrick J. Toole, Jr., Joseph F. Gallagher, Wilkes-Barre, for Estate of Mary M. Belefski, Deceased, appellee.

Before BELL, C. J., and MUSMANNO, JONES, COHEN, EAGEN, O'BRIEN and ROBERTS, JJ.

JONES, Justice.

These appeals present one narrow issue: whether Section 18 of the Public School Employes' Retirement Act, [Act], ¹ exempts from inheritance taxation proceeds of the Retirement Fund, [Fund] established under the Act, when such proceeds are payable and paid to the legal representative of a deceased contributor to the Fund and, thereafter, pass to those entitled thereto under the Wills Act or the Intestate Act. ²

Although each appeal arises in a separate estate, the factual background in both estates is identical insofar as disposition of both appeals is concerned. Both Mary Belefski and Helen Elward, at the times of their respective deaths, were public school teachers in active service and members of and contributors to the Fund. Each decedent had exercised an option provided by the Act and had designated a beneficiary to receive the Fund benefits but such designated beneficiary had predeceased the decedent. On decedent's death, the Fund benefits were paid to decedent's legal representative in accordance with the provisions of the Act.

In each estate, the Commonwealth included the proceeds received by the legal representative from the Fund among the assets of the decedent's estate in arriving at the balance of such estate upon which the inheritance tax was appraised. In each estate, an appeal was taken from the tax appraisal to the Orphans' Court of Luzerne County and that court decreed that the proceeds received from the Fund were exempt from inheritance taxation under Section 18 of the Act. From both decrees the Commonwealth has appealed.

Determination of the issue on these appeals depends upon the interpretation and construction of Section 18 of the Act which provides, inter alia: 'Exemptions from taxation, garnishment, etc. The right of a person to an employe's annuity, a State annuity, or retirement allowance, to the return of contributions, any benefit or right accrued or accruing to any person under the provisions of this act, and the moneys in the fund created under this act, are hereby exempt from any State or municipal tax, and exempt from levy and sale, garnishment, attachment, or any other process whatsoever, and shall be unassignable, except as in this act specifically otherwise provided, * * *.' (Emphasis supplied.)

At the outset it must be noted that the Commonwealth concedes that, had the designated beneficiary in each instance survived the decedent, the proceeds of the Fund which would have been paid to such designated beneficiary would not have been subject to an inheritance tax. The rationale of the Commonwealth in taking this position is that the 'right' of the designated beneficiary arises under the Act, that such designated beneficiary alone becomes entitled to the proceeds from the Fund, and such proceeds never become a part of the decedent's estate, subject to the claims of creditors and inheritance tax. Apparently, the basic distinction drawn by the Commonwealth is that (1) where a beneficiary is designated and survives decedent, the proceeds from the Fund are paid directly to such beneficiary, whereas (2) if no beneficiary is designated or if the designated beneficiary predeceases the decedent, the proceeds are paid to the legal representative of the decedent's estate and, upon such payment, the proceeds lose their identity as retirement funds.

The Commonwealth's contention is twofold: (a) that the nature of an inheritance tax is such that it is 'really not a tax at all in the ordinary meaning of the word, but rather a distributive share of the estate which the state retains for itself' and an inheritance tax is not 'a tax on the decedent's property * * * or on the transaction of transferring it * * * but an excise on the privilege of inheritance' (Tack's Estate, 325 Pa. 545, 548, 191 A. 155) and, therefore, an inheritance tax is not a 'State tax' within the language of the exemption clause of Section 18; (b) even if such exemption clause be construed to embrace an inheritance tax, the proceeds from the Fund were paid to the decedent's estate and, upon such payment, the estate became the owner of the proceeds and it is the devolution of such proceeds from the estate to those persons entitled, either under decedent's will or the intestate laws, which is taxable for inheritance tax purposes.

Tack's Estate, supra,--upon which the Commonwealth relies so heavily--determined a very narrow issue: whether 'the tax imposed by the act of 1919 [the inheritance tax statute is] a tax on the transfer of' certain Delaware River Bridge Joint Commission bonds issued under the authority of identical statutes of Pennsylvania and New Jersey (36 P.S. § 3503; N.J.S.A. 32:3-12). Both enabling statutes provided, inter alia: 'the bonds * * * issued by the commission, their transfer and the income therefrom (including any profits made on the sale thereof), shall, at all times, be free from taxation within [Pennsylvania and New Jersey]' and each bond contained a clause stating that, under the enabling statutes, 'this Bond is exempt from taxation.' The decisional point in Tack's Estate was that an inheritance tax was not a tax on the transfer of these bonds within the meaning of the exemption clauses of the enabling statutes. The rationale of the Court was that an inheritance tax is not a tax either on the property of a decedent or on the transfer of such property but on the right of succession or of inheritance of the estate of a decedent, hence, not within the provisions of the exemption clause of the enabling statutes. With such holding and rationale we are in full agreement. If the wording of Section 18 does not exempt a State tax on the right of succession to, or of inheritance of, the proceeds received from the Fund, then clearly Tack's Estate requires that an inheritance tax be paid on the proceeds received from the Fund in the case at bar.

The Commonwealth further places great reliance on In re Simpson's Estate, 43 Cal.2d 594, 275 P.2d 467, 47 A.L.R.2d 991, a 4-3 decision of the Supreme Court of California. The decisional point in Simpson was that, under the wording of the exemption clause in the California County Employees' Retirement Law, where a county employee died having designated his widow as his beneficiary to receive death benefits under the statute, the benefits which the widow, as designated beneficiary, received were subject to the payment of an inheritance tax. Simpson is presently inapposite. In the first place, in holding that a designated beneficiary under the retirement statute must pay an inheritance tax on the proceeds received by such beneficiary from the retirement fund, Simpson takes a position directly contrary to that now taken by the Commonwealth, i. e., that, under such circumstances, the proceeds received by a designated beneficiary are not subject to inheritance taxation. In the second place, the California statute employed the language (Government Code, § 31452) 'exempt from taxation, whether state, county, municipal, or district' whereas the language in our statute reads 'exempt from any State or municipal tax.' ³ In fact, as the opinion in Simpson clearly and explicitly indicates, the Court deemed of great significance the fact that the California legislature had not adopted the language of the exempting clause in the New York retirement statute--'exempt from any State or municipal tax'--which had been construed by the New York courts as exempting retirement benefits from inheritance taxation. The Court in Simpson considered the word 'any' as 'a word broad enough to comprehend, in its enlarged and plural sense, all state or municipal taxes without limitation' and noted that the California legislature 'chose not to include the word 'any' in the tax exemption clause, a deletion consistent with an intent to effect a different application.' ⁴ In this respect, Simpson supports the appellees', rather than the Common wealth's, construction of the wording of Section 18.

Critical in determination of these appeals is the exact language of the exemption clause of Section 18. That which Section 18 exempts from 'any State or municipal tax' is the 'right of a person' to certain specifically named benefits under the Act which benefits fall into six categories. Four of the six categorized benefits receive specific definition in the Act while two of such categorized benefits are not so defined. ⁵ Bearing in mind the statutory definitions of the benefits in the first four stated categories, it is obvious that the 'right of a person' under the exempting clause to such benefits refers to the 'right' of a living contributor to the Fund, a 'right' not presently in issue. An analysis of Section 18, construed in the light of and in connection with other provisions of the Act, discloses that the words, 'any benefit or right accrued or accruing to any person under the act' mean and include the benefit or right accrued or accruing to any contributor as well as to any beneficiary. In other words, this benefit or right accrues not only to any contributor but also to any 'person i. e., any beneficiary and any person who acts for a living contributor (i. e., a guardian for a living contributor) or to a person who acts for a deceased contributor to the fund (i. e. a designated beneficiary or the legal representative of a deceased contributor). The sixth category refers and is limited to 'moneys in the fund created under the Act,' and the...