People v. Schallerer

• Decision Date: 20 September 1957
• Docket Number: Nos. 34364-34366,s. 34364-34366
• Citation: People v. Schallerer, 12 Ill.2d 240, 145 N.E.2d 585 (Ill. 1957)
• Parties: , 73 A.L.R.2d 150 The PEOPLE of the State of Illinois, Appellant, v. Matilda H. SCHALLERER, Ex'x, et al., Appellees.
• Court: Illinois Supreme Court

Page 585

145 N.E.2d 585

12 Ill.2d 240, 73 A.L.R.2d 150

The PEOPLE of the State of Illinois, Appellant, v.Matilda H. SCHALLERER, Ex'x, et al., Appellees.

Nos. 34364-34366.

Supreme Court of Illinois.

Sept. 20, 1957.

As Modified on Denial of Rehearing Nov. 19, 1957.

Latham Castle, Atty. Gen. (William C. Wines, A. Zola Groves, Harry A. Ash, Stewart P. Mulvihill, and Joseph O. Rubinelli, Chicago, of counsel), for appellant.

Edmund A. Spencer, Paul L. Freter, and Timothy J. Crowe, Chicago, for appellee in No. 34364.

Chapman & Cutler, Chicago (Frederick O. Dicus, and John N. Vander Vries, Chicago, of counsel), for appellee in No. 34365.

Litsinger, Gatenbey & Spuller, Chicago (Andrew W. Gatenbey and Fred H. Law, Jr., Chicago, of counsel), for appellee in No. 34366.

HERSHEY, Justice.

Three cases from the county court of Cook County have been consolidated for argument and opinion.Each involves the following question arising under the Illinois Inheritance Tax Act: where a person purchases an annuity contract providing for a fixed annual stipend for a definite period of time or for as long as he should live, with a provision that if he die before receiving the stipulated amount (i. e., purchase price plus interest) then the difference between that sum and the annuities received is to be paid to named beneficiaries other than his estate, upon the death of such person does such payment of the balance, or a portion thereof remaining, measure an Illinois inheritance tax?

The county court answered the question in the negative, and the State appeals.Revenue being involved, this court has jurisdiction on direct appeal.

There are 20 refund annuity contracts involved in this litigation, all in substantially the same form.The decedent in each instance purchased the contract from an insurance company, which agreed to make stipulated payments to the purchaser during his lifetime, and upon his death to pay any balance remaining to designated beneficiaries.Under some of the policies the stipulated payments would cease prior to death if the purchase price plus interest was returned, whereas in others the company was obligated to continue those payments for the lifetime of the purchaser regardless of how long the latter lived.In each, however, any amount remaining upon the death of the purchaser was to be paid to beneficiaries designated by him, and the purchaser retained the right to withdraw the cash surrender value at any time or to change the beneficiaries.

Originally enacted in 1895, the Illinois Inheritance Tax Act has remained substantially unchanged since 1909.The pertinent provision here is section 1, which provides, inter alia, as follows: 'A tax shall be and is hereby imposed upon the transfer of any property * * * in the following cases: * * * 3.When the transfer is of property made by a resident * * * by deed, grant, bargain, sale or gift, * * * intended to take effect in possession or enjoyment at or after such death * * *.'Ill.Rev.Stat.1951, chap. 120, par. 375.

The crux of the matter is whether the creation of these refund annuities and the subsequent payments to the named beneficiaries constitute 'transfer of any property''intended to take effect in possession or enjoyment' at or after death.An analysis of the transactions and legal relationships created thereby is determinative of the issue.

In each of the annuities here in question the premium or purchase price was paid, contributed, or deposited by the decedent.Each annuity contract provided for payments of annuities to the decedent purchaser with a provision that if the original investment or the original investment plus accruals was not returned to the decedent during his lifetime, the sum retained by the company should be payable in annuities or a lump sum to the named beneficiaries or their estates.In each of the annuity contracts the purchasing decedent retained one or more of the following powers: to modify or revoke the provisions of the contract, to withdraw in whole or part the funds retained by the company, or to revoke or change the designation of beneficiaries.

A refund annuity, such as we have in the instant situation, is a contract whereby the annuitant protects himself, during his life, by making an investment to assure annual payments to himself during his life.If he dies prematurely, his beneficiaries receive the undistributed portion of the investment.In re Atkins' Estate, 129 N.J.Eq. 186, 18 A.2d 45;Garos v. State Tax Com., 99 N.H. 319, 109 A.2d 844.The monies refunded to the beneficiaries in each of these refund annuity situations are only that undistributed portion of the decedent's original investment or deposit plus accruals, monies belonging to decedent during his lifetime and not acquired by virtue of the occurrence of a stated risk.

This court has determined that a transfer intended to take effect in possession or enjoyment at or after death is a disposition in which the donor retains the economic interest or enjoyment of the property during his life.People v. Moses, 363 Ill. 423, 2 N.E.2d 724.Upon the designation of beneficiaries in these refund annuity contracts a transfer occurred.In re Bayer's Estate, 345 Pa. 308, 26 A.2d 202;In re Atkins' Estate, 129 N.J.Eq. 186, 18 A.2d 45.The transfer did not then vest in possession or enjoyment.Only upon the death of the decedent purchaser of or investor in the refund annuity, did the interest of the beneficiary ripen into possession or enjoyment.It was a transfer or passing of a contingent interest in the annuity investment in which the decedent retained control of or an interest in the property transferred in one or more respects.It is therefore clear that in the refund annuities which are here in question we find (1) a transfer of property, (2) by grant or gift, (3) intended to take effect in possession or enjoyment at or after the death of the grantor or donor.Thus these refund annuities clearly fit within the specified limits and requirements of section 1 of the Illinois Inheritance Tax Act and are taxable transfers.A number of our sister States, having essentially...