Northern Trust Co. v. Comm'r of Internal Revenue (In re Estate of Miller)

• Decision Date: 21 April 1950
• Docket Number: Docket No. 19505.
• Citation: 14 T.C. 657
• Parties: ESTATE OF WILLIAM S. MILLER, DECEASED, THE NORTHERN TRUST COMPANY, FORMER EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

14 T.C. 657

ESTATE OF WILLIAM S. MILLER, DECEASED, THE NORTHERN TRUST COMPANY, FORMER EXECUTOR, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 19505.

Tax Court of the United States.

Promulgated April 21, 1950.

Decedent was paid an annual pension of $15,000 upon his retirement, pursuant to the terms of a compulsory pension plan established by his employer to which he and his employer had regularly contributed. Under the plan an annual pension in the amount of $3,000 was payable to decedent's wife upon his death. Decedent possessed no election under the plan in respect to the naming of his wife as surviving pensioner or the amount of the pension she might receive upon his death. The rules and regulations of the plan provided that the pensions payable to decedent and his wife, as pensioners, were subject to reduction in amount at any time and to elimination in the event of various contingencies, such as his unauthorized acceptance of a position with another like employer, bankruptcy, voluntary assignment, conviction for a felony, or liability for a judgment or decree for the payment of money. Held, that the pension which was payable to the decedent's wife upon his death did not represent an interest in property of which the decedent had made a transfer intended to take effect in possession or enjoyment at or after his death within the meaning of section 811(c) of the Internal Revenue Code, and, therefore, the commuted value of the wife's pension is not properly includible in the decedent's gross estate. Leland K. Neeves, Esq., for the petitioner.

A. H. Moorman, Esq., for the respondent.

Respondent has determined a deficiency in estate tax in the amount of $2,809.81.

The sole question presented is whether the commuted value of annual payments made to decedent's widow from a pension trust established by decedent's employer is properly includible in decedent's gross estate under the provisions of section 811(c) of the Internal Revenue Code.

Other minor adjustments made by respondent to the value of decedent's gross estate are not challenged by the petitioner. The parties are also agreed that petitioner will incur and pay additional administrative expense, attorneys' fees, and expenses of litigation, and that the determination and allowance of the allowable deduction for such expense will be made under Rule 50.

The facts have been stipulated by the parties and, in so far as material to the issue herein, they are set forth in our findings of fact.

FINDINGS OF FACT.

The decedent, William S. Miller, was born on September 27, 1873. He died testate on June 1, 1945, and at that time was a resident of the Village of Winnetka, Cook County, Illinois. He was survived by his wife, Mary P. W. Miller, aged 63, who as the sole devisee and legatee under his will.

The Northern Trust Co. was duly appointed as Miller's executor on July 27, 1945, and continued in that capacity until discharged by court order on December 5, 1946. The respondent was never notified of this discharge. On August 26, 1946, the Northern Trust Co. filed a Federal estate tax return for Miller's estate with the collector of internal revenue for the first district of Illinois, and on that date paid the collector the sum of $22.93 representing the Federal estate tax shown by the return to be owing.

Miller was employed by the Northern Trust Co. continuously from January 20, 1900, until the date of his retirement on December 31, 1944. At the time of his retirement and for many years prior thereto, he was vice president and general counsel of the bank.

The pension fund of the Northern Trust Co. was first established on April 1, 1913. The Northern Trust Co. of Chicago Officers' and Employees' Pension Trust, hereinafter referred to as the pension trust, was established on May 31, 1929, replacing the prior pension fund.

Miller became a member of the pension fund upon its establishment on April 1, 1913, and continued as a member thereafter until the establishment of the pension trust on May 31, 1929, and continued as a member of the pension trust at all times thereafter until his retirement and death.

Over his period of service with the bank and prior to retirement, Miller contributed the total sum of $8,564.60 to the pension fund and the pension trust, which was the full amount he was required to contribute.

During the entire time of the existence of the pension fund and of the pension trust, the Northern Trust Co. contributed thereto. From the time of the establishment of the pension fund in 1913 to May 18, 1926, the Northern Trust Co. was required to contribute 5 per cent of the salaries of the participating officers and employees, excepting that this percentage was computed on only the first $4,000 of such salaries, respectively. Effective as of May 18, 1926, and thereafter, and after the establishment of the pension trust on May 31, 1929, and thereafter to January 1, 1944, the above percentage was computed upon the first $10,000 of such salaries, respectively. Effective January 1, 1944, and thereafter to and until decedent's retirement, the Northern Trust Co. was required to contribute 6 per cent annually of the whole amount of such salaries, respectively. The Northern Trust Co. made all of the contributions so required to be made.

The rules and regulations of the pension trust so established on May 31, 1929, were amended from time to time in accordance with the provisions of the trust indenture creating the pension trust. The rules and regulations in effect as of December 31, 1944, the date of Miller's retirement, contain the following pertinent provisions:

5. (a) Every officer and employe shall contribute annually until he becomes a pensioner, a sum equal to three per centum (3%) of his salary, payable in equal monthly installments, each installment to be deducted from the monthly pay and credited to the Pension Trust.

(b) The Bank shall contribute to it six per centum (6%) annually of the amount of such officers' and employees' salary, payable in monthly installments and credited to the Pension Trust.

(c) Whenever any officer or employe shall have received a total salary entitling him to the maximum annual pension hereinafter fixed by Rule 15(c), he shall no longer make any further contributions to the fund nor shall the Bank make any further contributions to the fund on his behalf.

8. All officers and employees, except those who may be excused from so doing by the Board of Directors, will be required to contribute to this Pension Trust.

9. (a) In case of resignation or dismissal of an officer or employe from the service of the Bank, all payments made by him to the Pension Trust * * * shall be returned, plus interest on said payments to January 1, 1936, at the rate of three per centum (3%) per annum and thereafter at the rates allowed from time to time in the Bank's Savings Department, all interest to be compounded semi-annually.

(b) In case of the death of an officer or employe a member of this Pension Trust, whose term of service in the Bank has been less than fifteen years, there shall be paid to such beneficiary or beneficiaries and in such proportions between them as he may designate in the latest instrument in writing delivered to the representative of the Trustees, the amount which such deceased officer or employe had contributed to the Pension Trust, together with the accumulations of interest on the said amount at the rate of three per centum (3%) per annum, compounded semi-annually * * * . In case there is no beneficiary designated or in existence at the death of such officer or employe, payment will be made as follows:

First, in accordance with the terms of the Last Will and Testament of the officer or employe.

Second, in case the Trustees have no notice of a Will of such deceased officer or employe within sixty (60) days after his death, then to the heirs-at-law of the officer or employee * * * .

10. An officer or employe on attaining the age of sixty years may be permitted to retire, or the Board of Directors may require him to retire, and in either case, if he shall have completed not less than fifteen years of service in the Bank, his pension shall be in an amount which is the actuarial equivalent of the pension which he would receive had he retired at age sixty-five.

11. An officer or employe on attaining the age of sixty-five years shall retire from the service, unless, for special reasons, the Board of Directors may wish him to continue in the service of the Bank and he consents thereto, in which event he shall retire from the service at such time thereafter as he or the Board of Directors may elect and upon such retirement he shall receive such pension as is herein provided if such officer or employe shall have completed not less than fifteen (15) years of service in the Bank.

12. An officer or employe who, after fifteen years of service, shall be incapacitated by accident or ill health, evidence thereof being given to the satisfaction of the Board of Directors, shall be permitted to retire and take the benefits provided for in these Rules and Regulations. If such incapacity occur prior to fifteen years of service, such officer or employe shall have returned to him his individual contributions * * * with interest at three per centum (3%) per annum, compounded semi-annually, added * * * .

3. In case an officer or employe becomes entitled to a pension by reason of having become incapacitated by accident or ill health or in case an officer or employe becomes entitled to a pension upon retirement, and in the further event that it is the mutual desire of such officer or employe and the Bank that he continue in the service of the Bank upon such terms and conditions as may be agreed upon, not, however, a continuation of the regular service as theretofore performed, then a pension may be granted such officer or employe notwithstanding the fact that he may continue in the service of the Bank.

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