In re Thornton's Estate
| Decision Date | 17 June 1932 |
| Docket Number | No. 29038.,29038. |
| Citation | 243 N.W. 389,186 Minn. 351 |
| Parties | In re THORNTON'S ESTATE. STATE ex rel. THORNTON et al. v. PROBATE COURT OF RAMSEY COUNTY et al. |
| Court | Minnesota Supreme Court |
Appeal from Probate Court, Ramsey County; Albin S. Pearson, Probate Judge.
Certiorari by the State, on the relation of Martin E. Thornton and others, executors under the last will of Joseph M. Thornton, deceased, to review orders of the Probate Court of Ramsey County and Albin S. Pearson, Judge thereof, imposing and fixing the amount of the succession tax against the estate of the decedent.
Writ of certiorari discharged, and the orders affirmed.
O'Brien, Horn & Stringer, of St. Paul, for relators.
Henry N. Benson, Atty. Gen., and John F. Bonner, Asst. Atty. Gen., for respondents.
Certiorari to the probate court of Ramsey county to review its orders imposing and fixing the amount of a succession tax arising out of certain contracts issued to the decedent by three insurance companies.
Relators, the executors of the estate of Joseph M. Thornton, deceased, present for decision the question whether the rights of the beneficiaries to succeed to the sums of moneys on so-called annuity insurance contracts or policies, issued to deceased, are subject to the succession tax law of this state. The facts were stipulated and condensed are as follows: Each of three life insurance companies, authorized to do business in this state, issued, during the first part of 1931, so-called annuity policies or contracts to Joseph M. Thornton, who thereafter died testate, on July 1, 1931. At the time these contracts were issued, Thornton paid to each company the sum of $30,000. No future payments or premiums were required. None of the contracts contemplated any segregation of assets applicable to or securing the payments to be made under the contracts, but the sums above named paid by Thornton became the absolute property of the company receiving the same. Each company agreed to pay Thornton annually a specified sum, beginning with the year 1932. The sum so agreed to be paid each year was $900 by one company, $1,050 by another, and $980 by the third. Besides these annuities, the companies agreed that, during Thornton's lifetime, there would be guaranteed earnings on the sums paid in equal to 3½ per cent., and that he would be paid such additional amount as might be allocated to him by the board of directors of each company out of interest earnings in excess of 3½ per cent. Old line life insurance companies issue level premium policies in which they agree to account to the policyholder for his proportionate share of the divisible surplus. The amount so accounted for is called a dividend and may be taken in cash by the policyholder. This dividend varies with the success of the company. In such companies, the amount included in the premium, to provide the proper reserve, is based upon the assumption that the company will earn at least 3 per cent. on its reserve. The policy contracts here involved are not what are ordinarily known as annuity contracts in which a definite annual sum is to be paid the annuitant during his life or the life of some other person named in the contract and in which such annual payments absorb portions of the principal. The annual rate of interest earned by the companies upon their total investments exceeded 5 per cent. up to the time these contracts were issued, and it seemed probable that the annuities to be paid under this type of contracts would exceed 5 per cent. in the future. Except in what is known as business insurance, the right to change beneficiaries is common to all life insurance, and so is the right to cancel the contract and receive the full cash surrender value thereof, and also the right to borrow and hypothecate the contract or policy. The amounts paid the beneficiaries were $94,712.99. There were here no annuity payments, for Thornton died before the year in which such were to be paid; and under the contracts the beneficiaries, in addition to the $30,000, were entitled to receive a sum equal to the single premium paid less annuity payments. If the insured died before the time of making the first payment, each company agreed to pay to the beneficiaries the total amount of the premium paid; and each company assumed the risk of the small earnings and depreciation and loss on its investment, the result of which might be that the company would be required to make during Thornton's lifetime a larger annual payment than it earned, and, upon Thornton's death, pay to the beneficiaries an amount in excess of the benefits accruing to it from the premium paid. The contracts are made part of the stipulation. These are very lengthy, and need not be noted, except as to provisions deemed important to determine the question for decision. Among these are that the $30,000 Thornton paid to each company it agreed to repay to him at any time during his lifetime upon 90 days' notice. He also reserved the right to change beneficiaries. No physical examination seems to be required of the one who pays the consideration for such contracts.
Relators maintain that these contracts have all the features of the ordinary life insurance policies, and hence are not subject to the state transfer or succession tax. Ordinary life insurance policies, after being in force for a short time, have a cash surrender value, a loan value, and the insured usually has the right to change beneficiaries and to assign the policy. Like features are found in the contracts here involved....
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