Kirkwood v. Kelly

SPENCE, J. — The State Controller appeals from an “Order Sustaining Objections to Report of Inheritance Tax Appraiser and Fixing Inheritance Tax,” which order had exempted certain death benefits paid to respondent by the San Francisco and State of California Retirement Systems. Government Code, section 31452, exempts such payments from property taxation but not from the state inheritance tax. (Estate of Simpson, 43 Cal.2d 594 [275 P.2d 467].) The question now presented is whether such payments, as respondent claims, constitute proceeds from an “insurance policy” (Rev. & Tax. Code, § 137211) and are therefore exempt from the inheritance tax (Rev. & Tax. Code, §§ 13723-137242). Appellant challenges the propriety of the order exempting such payments and, in our opinion, his position must be sustained.

The appeal is presented on an agreed statement. The deceased, a teacher, died during her term of active service. Respondent, her sister and designated beneficiary, thereupon was paid $8,048.55 by the San Francisco Teachers’ Retirement Fund and $846.50 by the State Retirement Fund. The $8,048.55 consisted of the amount earnable by the decedent during the six months immediately preceding her death ($3,157.00), plus the amount of her contributions to the [294]fund with accrued interest ($4,891.55); and was paid pursuant to section 165.2(e) of the Charter of the City and County of San Francisco.3 The parties agree that, for the purpose of the question here involved, the $846.50 received from the State Eetirement Fund should be treated in the same manner as that part of the local retirement payment which represents contributions of the decedent.

The primary purpose of the retirement systems was unquestionably to provide for an annuity to the employee upon retirement. However, the San Francisco system did provide for a death benefit as above noted. In this connection, the parties stipulated in the agreed statement that “The portion of the San Francisco death benefit consisting of the equivalent of six months’ compensation becomes payable immediately a teacher becomes a member of the system. ’ ’ It was further stipulated that “The San Francisco Teachers’ Eetirement Fund is supported one-half from tax revenues and one-half by contributions by the members. The amount of the respective contributions are adjusted from time to time as actuarial computations dictate to maintain the fund in solvent condition to meet all future liabilities as actuarially computed. ’ ’

Thus, the death benefit proper was payable in the event that an employee might die shortly after entering the service, and the manner of adjusting the retirement fund contributions in accordance with actuarial computations suggests that there were elements of risk-shifting and risk-distribution similar to those involved in “insurance.” (See Estate of Barr, 104 Cal.App.2d 506, 508-509 [231 P.2d 876].) But the question remains as to whether the death benefit payments constituted the “proceeds” of an “insurance policy” within the meaning of the exemption statute. (Rev. & Tax. Code, §§ 13721, 13723-13724.)