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HUSTON ESTATE (01/04/67)

decided: January 4, 1967.

HUSTON ESTATE


Appeal from decree of Orphans' Court of York County, June T., 1965, No. 11, in re estate of Emily R. Huston, deceased.

COUNSEL

Francis J. Gafford, Deputy Attorney General, with him David R. Monroe, Counsel, and Walter E. Alessandroni, Attorney General, for Commonwealth, appellant.

Edwin M. Buchen, for appellee.

Bell, C. J., Musmanno, Jones, Cohen, Eagen, O'Brien and Roberts, JJ. Opinion By Mr. Justice Cohen.

Author: Cohen

[ 423 Pa. Page 621]

This case involves the construction of § 316 of the Inheritance and Estate Tax Act of 1961, Act of June 15, 1961, P. L. 373, 72 P.S. § 2485-316. That section provides in pertinent part: "Payments under pension, stock-bonus or profit-sharing plans, to distributees designated by decedent or designated in accordance with the terms of the plan, other than the estate of the decedent, are exempt from inheritance tax to the extent

[ 423 Pa. Page 622]

    that decedent before his death did not otherwise have the right to possess (including proprietary rights at termination of employment), enjoy, assign or anticipate the payments so made . . . ."

The facts of this case are set forth at length in the thorough opinion of the Orphans' Court of York County, per Judge Kohler. It is sufficient, we believe, merely to state that decedent was a retired employee who, under the provisions of a profit-sharing trust created and entirely funded by her employer, was entitled to receive the retirement benefits therein provided for her in monthly payments, until entirely distributed. Under the terms of the trust, she had the right to name a beneficiary to whom the balance of her share of the fund would be distributed in the event of her death prior to total distribution. The decedent died before receiving her full share, and the Commonwealth seeks to tax the balance of her interest in the fund which was paid at her death to her beneficiary in accordance with the plan. The sole issue is whether such payment is exempt from inheritance taxation under § 316 of the 1961 Act, supra.

The Commonwealth first argues that because the decedent had a vested interest in the fund allocated to her, it was her property, and although decedent did not have the right to possess, assign or anticipate the unpaid balance of the fund during her lifetime, she did have the ownership of it. The Commonwealth claims that since decedent "owned" the fund, it passed on her death to her beneficiary as part of her estate and, as such, is subject to the inheritance tax. We do not agree.

The leading case discussing taxation of the benefits of pension plans is Dorsey Estate, 366 Pa. 557, 79 A.2d 259 (1951), which as Judge Kohler's opinion states, "involved an employee participant in a profit-sharing plan who had made certain contributions during

[ 423 Pa. Page 623]

    his lifetime and his employer had done likewise. On his death the accumulations from both sources were payable to the beneficiary designated by the employee. There was no dispute as to the contributions made by the employee, but as to the employer's it was argued that the decedent was merely exercising a power of appointment over that portion of a share of the fund. In rejecting such contention, the Court emphasized that the employee had a right to withdraw in his lifetime the total amount of the fund credited to him. Therefore, said the Court, 'he had, in any event, substantial ownership of his entire share of the fund and accordingly, in transferring it to the beneficiary designated by him he was transferring not only his own property to the extent that it represented contributions from his salary, but also his own property to the extent that it represented his proportionate share of the Company's contributions, and therefore he was not in any wise acting merely as the donee of a power of appointment'." Dorsey, the lower court pointed out, was decided under the Inheritance Tax Act of 1919, which contained no exemption provisions comparable to § 316 of the 1961 Act. And therein lies the solution to the Commonwealth's problem. The lower court stated that § 316 "subjects to tax employment benefits wherein the employee may enjoy, assign or anticipate benefits before death, or would have had such proprietary ...


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