Garos v. State Tax Commission

• Decision Date: 15 December 1954
• Citation: Garos v. State Tax Commission, 109 A.2d 844, 99 N.H. 319 (N.H. 1954)
• Parties: Thomas J. GARS, Ex'r, v. STATE TAX COMMISSION.
• Court: New Hampshire Supreme Court

Page 844

109 A.2d 844

99 N.H. 319

Thomas J. GARS, Ex'r, v.STATE TAX COMMISSION.

Supreme Court of New Hampshire.

Argued Nov. 4, 1954.

Decided Dec. 15, 1954.

Philip J. Biron, Manchester, for executor, furnished no brief.

Maurice E. Lemelin, Manchester, guardian ad litem, pro se.

Louis C. Wyman, Atty. Gen., and Warren E. Waters, Deputy Atty. Gen., for State Tax Commission.

GOODNOW, Justice.

Between 1942 and 1947, John B. Karlaftis, the decedent, became a party to four annuity contracts with two different insurance companies.Under each of these contracts, Karlaftis undertook to pay an annual premium to the company until he reached approximately the age of sixty-five years or until his prior death.The companies agreed that after his age sixty-five they would pay him a fixed monthly sum until he death.They also agreed that if he should die before the commencement of the monthly payments, they would pay a 'death benefit' to persons named by him and designated in the contracts as beneficiaries.Under the contracts, Karlaftis could surrender his policies at any time for a stipulated cash value; could convert the cash value at certain specified times into one of four different types of annuities; and could change the beneficiaries of the death benefits.None of these powers were exercised by him.So far as appears, no physical examination of the decedent was required prior to the making of the contracts.Karlaftis, then domiciled in Manchester, died on August 11, 1953 at the age of fifty-nine and before commencement of any monthly payments to him under any of the contracts.The persons designated in the policies as beneficiaries are not within the class of persons excepted from the succession tax under R.L. c. 87, § 1.

The question presented is whether the benefits payable under the annuity contracts in question are subject to taxation under R.L. c. 87, as amended byLaws 1951, c. 242, § 1 which provides: 'All property within the jurisdiction of the state, real or personal, and any interest therein, belonging to domiciliaries of the state * * * which shall pass * * * by deed, grant, bargain, sale or gift, made in contemplation of death, or made or intended to take effect in possession or enjoyment at or after the death of the grantor or donor * * * shall be subject to a tax.'

The beneficiaries under a life insurance policy take, at the time of their designation, 'a present legal interest in the right to receive' the proceeds of the policy upon the death of the insured.Barbin v. Moore, 85 N.H. 362, 368, 159 A. 409, 413, 83 A.L.R. 62.Such an interest is not given or intended 'to take effect in possession or enjoyment at or after the death' of the insured and is not taxable under R.L. c. 87, § 1as amended.The beneficiaries of the annuity contracts now being considered contend that the interest transferred to them at the time of their designation as beneficiaries is identical with that acquired by beneficiaries under life insurance policies and is likewise not taxable.We cannot support this contention.

The interest which the beneficiaries of an insurance contract acquire at the time of their designation depends upon the terms of the contract and the nature of the rights created by it.Contracts of life insurance differ from most other contracts in that the primary purpose for which they are made is not to benefit the insured but to protect the named beneficiaries against loss accruing to them by reason of the insured's death.The reason that the interest which the beneficiaries of such a contract acquire upon their designation, is deemed to be a present one lies in the character of the rights and powers granted to the insured by the contract.An insurance company which is a party to such a contract is immediately and at all times during its continuance obligated to pay to the beneficiaries the same fixed sum of money, the amount of which is established by the terms of the contract without reference to the number of years the contract has been in force and premiums paid, subject only to such encumbrances as may exist thereon.'There is no fund in which [the insured] has an ownership which is the subject of his act in designating the beneficiary.'Tyler v. Treasurer & Receiver General, 226 Mass. 306, 309, 115 N.E 300, 301, L.R.A.1917D, 633.The right to this amount does not become an instant obligation of the company until the death of the insured.'The insured has no title to the amount due on the policy.He does not and cannot make a gift of that.'Tyler v. Treasurer & Receiver General, supra, 226 Mass. 309, 115 N.E. 301.'All that he had in that respect was a power of appointment, a right to reduce, incumber, or destroy the title of the then designated beneficiaries.'Barbin v. Moore, supra, 85 N.H. 371, 159 A. 414, 83 A.L.R. 62.

As between the beneficiaries of a life insurance contract and the representatives or creditors of the insured's estate, the...