Appeals, Nos. 199 and 200, Jan. T., 1963, from decrees of Orphans' Court of Luzerne County, No. 1446 of 1961, and No. 1592 of 1960, in re estate of Mary M. Belefski, deceased, and estate of Helen I. Elward, deceased. Decrees affirmed.
Vincent X. Yakowicz, Deputy Attorney General, with him Walter E. Alessandroni, Attorney General, for Commonwealth, appellant.
Albert N. Danoff, with him Patrick J. Toole, Jr. and Joseph F. Gallagher, for appellees.
Before Bell, C.j., Musmanno, Jones, Cohen, Eagen, O'brien and Roberts, JJ.
OPINION BY MR. JUSTICE JONES
These appeals present one narrow issue: whether Section 18 of the Public School Employes' Retirement Act (Act),*fn1 exempts from inheritance taxation proceeds of the Retirement Fund (Fund), established under the Act, when such proceeds are payable and paid to the legal representative of a deceased contributor to the Fund and, thereafter, pass to those entitled thereto under the Wills Act or the Intestate Act.*fn2
Although each appeal arises in a separate estate, the factual background in both estates is identical insofar as disposition of both appeals is concerned. Both Mary Belefski and Helen Elward, at the times of their respective deaths, were public school teachers in active service and members of and contributors to the Fund. Each decedent had exercised an option provided by the Act and had designated a beneficiary to receive the Fund benefits but such designated beneficiary had predeceased the decedent. On decedent's death, the Fund benefits were paid to decedent's legal representative in accordance with the provisions of the Act.
In each estate, the Commonwealth included the proceeds received by the legal representative from the Fund among the assets of the decedent's estate in arriving at the balance of such estate upon which the inheritance tax was appraised. In each estate, an appeal was taken from the tax appraisal to the Orphans'
Court of Luzerne County and that court decreed that the proceeds received from the Fund were exempt from inheritance taxation under Section 18 of the Act. From both decrees the Commonwealth has appealed.
Determination of the issue on these appeals depends upon the interpretation and construction of § 18 of the Act which provides, inter alia: "Exceptions from taxation, garnishment, etc. The right of a person to an employe's annuity, a State annuity, or retirement allowance, to the return of contributions, any benefit or right accrued or accruing to any person under the provisions of this act, and the moneys in the fund created under this act, are hereby exempt from any State or municipal tax, and exempt from levy and sale, garnishment, attachment, or any other process whatsoever, and shall be unassignable, except as in this act specifically otherwise provided, ...." (Emphasis supplied).
At the outset it must be noted that the Commonwealth concedes that, had the designated beneficiary in each instance survived the decedent, the proceeds of the Fund which would have been paid to such designated beneficiary would not have been subject to an inheritance tax. The rationale of the Commonwealth in taking this position is that the "right" of the designated beneficiary arises under the Act, that such designated beneficiary alone becomes entitled to the proceeds from the Fund, and such proceeds never become a part of the decedent's estate, subject to the claims of creditors and inheritance tax. Apparently, the basic distinction drawn by the Commonwealth is that (1) where a beneficiary is designated and survives decedent, the proceeds from the Fund are paid directly to such beneficiary, whereas (2) if no beneficiary is ...