Silverman v. Comm'r of Internal Revenue (In re Estate of Silverman)

• Decision Date: 04 February 1974
• Docket Number: Docket No. 2364-71.
• Citation: 61 T.C. 605
• Parties: ESTATE OF MAX SILVERMAN, DECEASED, BLANCHE S. SILVERMAN, EXECUTRIX, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

61 T.C. 605

ESTATE OF MAX SILVERMAN, DECEASED, BLANCHE S. SILVERMAN, EXECUTRIX, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 2364-71.

United States Tax Court

Filed February 4, 1974.

Irving B. Stewart, for the petitioner.

Ronald A. Wagenheim, for the respondent.

Decedent was a participant in his corporate employer's employees' pension plan, which plan qualified under sec. 401(a), I.R.C. 1954. This plan provided for a monthly annuity to participants to commence in all events when the participant reached 65. Decedent was not a stockholder of his corporate employer or a member of the pension committee. When decedent terminated his employment prior to reaching 65, his five annuity contracts were assigned absolutely to him. He surrendered three of these contracts for their cash surrender value and had borrowed prior to his death on the security of the other two, the proceeds of which were paid to his widow-beneficiary upon his death. Even though the policies matured over 5 years before decedent's death, he did not surrender them to begin receiving the annuities for which they provided. Held, the proceeds of the two annuity contracts paid to decedent's widow upon his death, were not amounts received under contracts which conformed to the requirements of the pension plan and therefore the amounts paid to the widow were not paid under that plan and are not excludable from decedent's gross estate under sec. 2039(c), I.R.C. 1954.

OPINION

SCOTT, Judge:

Respondent determined a deficiency in estate tax of petitioner in the amount of $4,193.85.

The issue for decision is whether the proceeds of two contracts, providing that upon their maturity date they were exchangeable for contracts providing for an annuity or annuities as selected by the owner from certain annuity options which had been purchased by a qualified pension trust established by the employer of Max Silverman (the decedent) for the benefit of decedent or the beneficiaries designated by him, but unconditionally assigned to decedent upon the termination of his employment prior to his attaining the specified retirement age without being exchanged for a selected annuity contract, are includable in decedent's gross estate or should be excluded under the provisions of section 2039(c), I.R.C. 1954.¹

All of the facts have been stipulated and are found accordingly.

Blanche S. Silverman, the executrix of the Estate of Max Silverman, deceased, resided in New York, N.Y., at the time the petition in this case was filed. She filed on behalf of the estate a Federal estate tax return with the district director of internal revenue for lower Manhattan.

Max Silverman, hereinafter referred to as the decedent, was born on August 11, 1896, and died at the age of 70, a resident of the State of New York, on October 21, 1966.

Letters testamentary were granted on November 9, 1966, by the Surrogate's Court, New York County, State of New York, to Blanche S. Silverman as executrix of decedent's estate.

Decedent was employed on July 30, 1942, and had been employed prior thereto by I. Schneierson & Sons, Inc., hereinafter referred to as Schneierson. Decedent continued in the employ of Schneierson until August of 1957 when he terminated his employment at the age of 61.

Schneierson entered into an agreement dated July 30, 1942, with certain of its employees and the Public National Bank & Trust Co. of New York as trustee (now Bankers Trust Co.) creating and establishing a pension trust, effective as of July 30, 1942. The original agreement dated July 30, 1942, was amended a number of times prior to December 5, 1944, on which date the pension trust agreement including all amendments was rewritten into a single instrument dated December 5, 1944. After December 5, 1944, the pension trust agreement was amended on several occasions prior to the date of decedent's termination of his employment with Schneierson but none of these amendments is relevant to the issues herein.

By letter dated December 26, 1944, the Commissioner of Internal Revenue approved the pension trust agreement as a qualified pension trust under the provisions of section 165, I.R.C. 1939 (section 165(a) of the 1939 Code was the predecessor provision to section 401(a) of the Internal Revenue Code of 1954).

Decedent as an employee of Schneierson was entitled to and did in fact become a participant in the pension trust agreement. The pension trust agreement was a noncontributing plan and decedent made no contributions to the plan.

Article 4 of the pension trust agreement provided for a pension trust committee of five members who were required to be employees of Schneierson. Decedent was not a member of this committee at any time nor was decedent a stockholder of Schneierson.

Article 5, section 8, of the pension trust agreement provided that as soon as practicable, but not later than 3 months after application by an eligible employee to become a participant in the pension trust plan, the Pension Trust Committee shall apply to a life insurance company or companies selected by it for contract or contracts for the benefit of such employee, which contracts shall provide for the benefits set forth in the pension plan. The application for contract and the contracts shall nominate and designate the trustee of the pension trust plan as the sole owner of the contracts, except that these contracts shall provide that the income payable after the retirement date shall be payable to the employee participant and shall provide for beneficiaries other than the trustee to receive settlement of any amount due in case of the employee participant's death.

Pursuant to the provisions of this section of the pension trust agreement, the Pension Trust Committee made application after decedent became eligible as a participant under the pension trust agreement for retirement annuity contracts for the benefit of decedent and thereafter five such annuity contracts were issued for the benefit of decedent.

Article 8 of the pension trust agreement provided that the normal retirement date in respect of any participant shall be the anniversary date of the contract obtained for his benefit nearest to his 65th birthday. Article 8 further provided that if the participant remained employed by the company after his normal retirement age, he would nevertheless begin receiving his annuity at the anniversary date of the policy as if he had retired. The pension trust agreement provided as follows with respect to the handling of these contracts upon a participant's reaching retirement age:

3. Upon attainment of retirement age, the Participant shall become entitled to the Contract or Contracts taken out for him and upon written notice to it from the Committee the Trustee shall either mail or otherwise deliver such Contract or Contracts (either without endorsements or endorsed in such manner as the Committee will approve) to such Participant, whereupon such Participant shall cease to be a party hereto.

4. The Committee after consulting with the Participant shall choose the options available under any Contract or Contracts under which payments are to be made for the benefit of such Participant during his lifetime after such retirement. Such choice of options shall be made by the Committee at least thirty days before the normal retirement date of such Participant or at such later date as the Committee shall deem advisable. Upon receipt of instructions from the Committee with respect to the choice of options made by the Committee, the Trustee shall elect the option or options chosen by the Committee. The options which the committee may choose shall be those available in the respective Contracts issued by the Issuing Companies from which such contracts are purchased and those thay (sic) be available by Agreement with any such issuing Company for the respective Contracts except that any such options must provide for income commencing on the retirement date which will last at least for the remaining lifetime of the Participant thereafter.

Article 10 of the pension trust agreement provides as follows with respect to termination of services by an employee participant:

1. In the event that the employment of any Participant by the Corporation or the Subsidiary shall terminate during his lifetime or prior to his normal retirement date and regardless of the cause of such termination, and whether it is voluntary or involuntary, the Committee shall immediately give a written notice to the Trustee of such termination and the date thereof. In such event the contributions of the Corporation and the Subsidiary to the cost of the benefits provided for such Participant shall cease.

2. Thereupon, the Committee, in its discretion, after conferring with the Participant, if it deems such conference feasible or advisable, shall subject to the provisions of ARTICLE XV, subdivision 12 hereof select any one of the following courses:

(a) Direct the Trustee to transfer and assign and deliver by mail or otherwise to said Participant any Contract or Contracts held by the Trustee for such Participant.

(b) Direct the Trustee to surrender any Contract or Contracts held by the Trustee to such Participant to the Issuing Company or Companies with instructions to obtain from such Issuing Company or Companies the cash value thereof or any other sum or sums remaining with such Issuing Company or Companies in connection with said Contract or Contracts and to pay over the same to such Participant.

(c) Such selection shall be made by the Committee within thirty days after the termination of the Participant's employment or at such earlier or later date as the Committee may determine. The selection made by the Committee shall be communicated to Participant by the Committee to the Trustee, and the Trustee upon receipt thereof, shall adopt such selection and comply therewith.

3. If the employment of any Participant is terminated and Participant is reemployed by the Corporation or...