Stevens' Estate, Matter of

• Decision Date: 05 October 1976
• Docket Number: No. 75--121,75--121
• Parties: In the Matter of the ESTATE of Sally M. STEVENS, Deceased. STATE of Wisconsin, Appellant, v. Gerrit D. FOSTER, co-executor, Respondent.
• Court: Wisconsin Supreme Court

Page 673

245 N.W.2d 673

74 Wis.2d 1

In the Matter of the ESTATE of Sally M. STEVENS, Deceased.

STATE of Wisconsin, Appellant, v. Gerrit D. FOSTER, co-executor, Respondent.

No. 75--121.

Supreme Court of Wisconsin.

Argued Sept. 13, 1976.

Decided Oct. 5, 1976.

Allan P. Hubbard, Asst. Atty. Gen., for appellant; Bronson C. La Follette, Atty. Gen., on brief.

W. Charles Jackson, Milwaukee (argued), for respondent; Gerrit D. Foster and Michael, Best & Friedrich, Milwaukee, on brief.

CONNOR T. HANSEN, Justice.

The facts are stipulated and undisputed. We deem the following facts pertinent to this appeal:

Sally M. Stevens died November 24, 1970, and was the widow of William C. Stevens, who died May 15, 1939. William C. Stevens had seven life insurance policies with The Northwestern Mutual Life Insurance Company of Milwaukee with an aggregate value of $90,000, which he continued to own up to and including the time of his death. His wife, Sally M. Stevens, was named primary beneficiary, and his children, Virginia M. and Clifford Brooks Stevens, were named contingent beneficiaries, share and share alike, or the survivor, on all seven policies.

On February 17, 1937, William C. Stevens executed an option with the insurance company. The option modified the beneficiary clause by providing a minimum monthly payment for his widow, Sally M. Stevens, in the amount of $2.47 per $1,000 of the amount retained by the insurance company. The option also gave her the right of surrender and withdrawal of the principal.

During her lifetime, Sally M. Stevens received income from the $90,000 fund pursuant to the option. At no time during her life or by her will or other testamentary document did Sally M. Stevens execute any written document transferring any rights in and to the fund held by the insurance company, nor did she release or renounce any of her rights thereunder. At no time during her life did Sally M. Stevens exercise her rights of surrender and withdrawal over the fund.

The full amount of the face value of the said policies, less a $10,000 exemption, was subjected to inheritance tax by the State of Wisconsin in the estate of William C. Stevens.

After the death of Sally M. Stevens, the insurance company, in accordance with the option exercised by William C. Stevens:

a) Paid $45,000 to Clifford Brooks Stevens; and

b) Agreed with Virginia M. Stevens (Feld) to retain the remaining $45,000 for her account on interest.

The effect of the order of the county court was to determine that the monies paid to Clifford Brooks Stevens and Virginia M. Stevens (Feld) by the insurance company after the death of Sally M. Stevens were not subject to an inheritance tax in the administration of her estate.

The issue in the case is as follows:

When the primary beneficiary of $90,000 insurance proceeds from her husband's life insurance policies who enjoyed settlement options executed by her husband which included the privilege of surrender and withdrawal of those proceeds from a fund held by the insurance company at any time during her lifetime, allowed her children to take the $90,000 at her death as contingent beneficiaries named by her husband by not exercising or renouncing her rights thereto, is said $90,000 included in her taxable estate for Wisconsin inheritance tax purposes?

In this state the inheritance tax is not a tax upon the right to give or transfer, determined by the value of the estate, as is the federal estate tax. Rather, it is a tax upon the right to receive and is determined by each transfer or gift according to the relationship of the parties, rate and amount, although it is collected through the personal representative of the estate. Nunnemacher v. State (1906), 129 Wis. 190, 108 N.W. 627; Estate of Bauknecht (1971), 49 Wis.id 392, 395, 396, 182 N.W.2d 238. It is a tax which is based upon a 'transfer' as defined by statute, and the tax is collected through the estate of the transferor. It is not essential that such proceeds shall become a part of the deceased's estate upon her death in order to subject them to inheritance tax. See: Will of Allis (1921), 174 Wis. 527, 534, 184 N.W. 381.

Sec. 72.01, Stats.1969, provides:

'Subject liable. A tax shall be and is hereby imposed upon any transfer of property, real, personal or mixed, or any interest therein, or income therefrom in trust or otherwise, to any person, association or corporation, in the following cases, except as hereinafter provided: . . .'

Sec. 72.24(2), Stats.1969, defines 'transfer' as follows: ¹

'(2) The word 'transfer' includes the passing of property or any interest therein in possession or enjoyment, present or future, by inheritance, descent, devise, succession, bequest, grant, deed, bargain, sale, gift or appointment in the manner prescribed in ss. 72.01 to 72.24.'

There is no dispute that the $90,000 fund constitutes property, nor can there be a dispute that a transfer within the meaning of sec. 72.24(2), Stats.1969, did occur, in that the 'possession or enjoyment' of the $90,000 fund passed from Sally M. Stevens to the contingent beneficiaries, after her death. The question is whether the transfer occurred in a manner so as to result in the imposition of an inheritance tax. We are of the opinion that it did.

Sec. 72.01(3)(b), Stats.1969, ² provides:

'(3) Transfers in contemplation of death or to take effect after death . . .

'(b) When a transfer is of property, made without an adequate and full consideration in money or money's worth by a resident or by a nonresident when such nonresident's property is within this state, or within its jurisdiction, by deed, grant, bargain, sale or gift, intended to take effect in possession or enjoyment at or after the death of the grantor, vendor or donor, including any transfer where the transferor has retained for his life or for any period not ending before his death: 1 The possession or enjoyment of, or the right to the income, or to economic benefit from, the property, or 2 the right, either alone or in conjunction with any person, to alter, amend, revoke or terminate such transfer, or to designate the beneficiary who shall possess or enjoy the property, or the income, or economic benefit therefrom.'

During her lifetime, Sally M. Stevens enjoyed the absolute right and privilege of withdrawing the proceeds and/or surrendering her right to the fund. She chose to do neither, but rather elected to have the fund remain with the company and pass to the contingent beneficiaries. The contingent beneficiaries had no contractual right to the fund during the life of Sally M. Stevens. It was she who enjoyed the sole rights of withdrawal and surrender during her lifetime.

In Estate of Stone (1960), 10 Wis.2d 467, 103 N.W.2d 663, the employer had established for the benefits of his employees a federally qualified trust fund retirement plan. The employee, Stone, was granted the power under the plan to elect a 'Joint and Survivor Option' whereby upon retirement, the annuity payments he would otherwise have been entitled to, would be reduced, such reduced payments payable to him for life and upon his death to his wife for life. Stone exercised the option, did not retire, but was eligible under the plan to do so and receive benefits. Upon his death his wife became entitled to payments of $602.50 per month for life. The State of Wisconsin sought to tax the present commuted value of such amounts under the inheritance tax laws, specifically sec. 72.01(3)(b), Stats. The wife contended that there was no transfer within the meaning of that section.

This court held that the exercise of such an option by Stone was a transfer within the meaning of sec. 72.01 (3)(b), Stats. In so holding, the court distinguished and limited its earlier holding in Estate of Sweet (1955), 270 Wis. 256, 70 N.W.2d 645. In Sweet, the employee was a member of the federal civil service retirement system established pursuant to the Federal Civil Service Retirement Act. Under that Act, upon his retirement, the employee was to receive annuity benefits and upon his death such benefits would become payable to his widow. The employee had no choice whatever in the designation of who should receive benefits upon his death. The employee, Sweet, died and the state sought to tax under the inheritance tax laws, the present value of the annuity benefits payable to the widow under the provisions of the Act. The court there held that the present worth of the annuity benefits so paid to the widow was not subject to inheritance tax under sec. 72.01(3)(b), Stats.

In distinguishing the two cases, the court in Stone, supra, stated at page 471 of 10 Wis.2d, at page 665 of 103 N.W.2d:

'. . . The important difference between the two situations is that Mrs Sweet became entitled to the annuity by the operation of the statute which controlled the retirement system, not because the employee exercised any option in her favor. The federal retirement system gave Mr. Sweet no power to create, or alter her status as beneficiary. Mr. Stone, however, was free to retain all the benefits provided under the retirement plan for himself, or he could, by reducing his own benefits, provided benefits to his wife if she survived.'

The court further limited the application of Sweet, stating at page 474, 103 N.W.2d at page 667:

'. . . (W)e consider that the Sweet decision is authority only as to benefits which, under a particular retirement plan, are payable to another upon the death of the employee without any option having been given to the employee as to the distribution of such benefits.'

In Sweet, the actual distribution of the benefits was controlled by federal statute. The same rationale and holding was applied to a private pension trust agreement in Estate of King (1965), 28 Wis.2d 431, 137 N.W.2d 122. In King, the terms of the Milwaukee Journal trust agreement determined how the benefits of the trust were to be distributed to the retired employee and his widow. No power...