In re Estate of Bowles

176 N.E.2d 750, 86 Ohio Law. Abs. 317, 1959 Ohio Misc. LEXIS 252

• Court: Ashtabula County Probate Court
• Decided: November 4, 1959
• Docket: No. 40127
• Status: Published

Opinion

Perry, J.

George O. Bowles purchased a 26 year Endowment Life Insurance Policy from the Northwestern Mutual Life Insurance Company on June 8, 1920, by which the Company agreed to pay $1,000.00 to George O. Bowles on June 8, 3946, or to his beneficiary in the event the insured should die before: that date. This policy matured as an Endowment on June 8, 1946, as George O. Bowles was still alive on that date.

On May 21,1946, the insured executed an instrument, which was attached to the policy, wherein he named himself as beneficiary to the proceeds — payable on June 8,1946 — and he designated his wife, Katherine Bowles only as contingent beneficiary thereunder.

He further stipulated in this instrument that: “Settlement of such proceeds shall be made with me in accordance with the provisions of option A in annual payments at the minimum rate of $30.00 per $1,000.” Option A provides that upon the death of the insured, settlement shall be made in one sum with the contingent beneficiary.

George A. Bowles did not die until January 20, 1959— nearly 13 years after the policy had matured.

Ño mention of this policy was made in the original application to determine the inheritance tax and the Executrix thereupon filed a supplemental inheritance tax petition on July 20, 1959, at the request of the Department of Taxation which supplemental petition'merely stated:

“Insurance Policy issued by the Northwestern Mutual Life Insurance Co., 720 East Wisconsin Ave., Milwaukee 2, Wisconsin, under which Katherine Bowles, surviving spouse, is the contingent beneficiary..........$1070.00.”

Nothing was said in the supplemental petition that this was an endowment policy and the Probate Court consequently found the new assets thus added not to be taxable under Section 5731.06, Revised Code, which Section reads as follows:

“Proceeds of policies of life insurance payable on the death of the insured, other than to the estate of the insured, shall not be considered as property passing within the meaning of Section 5731.02, Revised Code, whether paid directly by the insurer to the beneficiaries designated in such policies or to a trustee designated therein to be held and managed by such trustee and distributed to designated beneficiaries under an agreement or declaration of trust in the manner prescribed by the insured in said agreement or declaration of trust.”

Thereupon the Department of Taxation filed exceptions to this Court’s ruling and at the hearing and also in the brief subsequently filed, by tbe Department it was contended that an Endowment Policy, after it has matured, is not exempt from inheritance tax.

The Department claims that an Endowment Policy, after maturity, ceases to be life insurance and is just a form of investment; that after June 8, 1946, the Company no longer assumed any risk because at that time George O. Bowles had already paid in to the Company $1,094.08, which is more, than the face of the policy. The Department contends that after maturity the Company was merely holding the money for the owner of the policy as an investment at 3% interest, and that George O. Bowles had the right, at any time after June 8, 1946, to withdraw his money if he wanted to do so.

The Department cited the case of Kasishke’s Estate v. Oklahoma Tax Commission, 311 P. (2nd), 804. The exemption statute in Oklahoma and also in Ohio (Section 5731.06, Revised Code), refers only to life insurance policies and not to matured endowment policies.

On page 808 of the above mentioned case the Court stated: “It seems to be well settled law that when an endowment policy, with life insurance features, matures as an endowment, it becomes and represents a liquidated investment and not life insurance. ’ ’

On the part of the estate it was argued that the policy started out as a life insurance policy and therefore it continues as a life insurance policy until the proceeds are paid either to the insured or to the beneficiary.

George O. Bowles received dividends during his life time but the proceeds of the policy were not paid until after the death of the insured, so that the executrix claims that this policy which was payable on the death of the insured comes squarely within the provisions of Section 5731.06, Revised Code, and is therefore not taxable.

The exeecutrix does not believe In re Estate of Chadwick, 167 Ohio St., 373, cited by the Department is applicable to this case for the reason that the Chadwick case had to do with annuity contracts and not to life insurance policies. The Chadwick case held that annuities were not exempt from tax, as proceeds of life insurance, within the meaning of Section 5731.06, Revised Code, because tbe essential element of risk was not involved.

If George O. Bowles bad died before tbe endowment policy bad matured tbe amount payable to tbe contingent beneficiary, Katherine Bowles, would be exempt from inheritance taxes by reason of Section 5731.06, Revised Code. Tbe policy in that event would still retain the characteristics of a life insurance contract. But after an endowment policy matures and tbe proceeds are left with tbe Company, as an investment, tbe risk element of life insurance is gone. For thirteen years George O. Bowles bad control of this money to do with as be pleased. It was bis money on deposit with tbe Company, invested at 3% interest. It was no longer life insurance.

It is my opinion that a matured endowment policy is subject to inheritance tax. After tbe endowment policy bad matured tbe insured could either withdraw tbe money or leave it with tbe Company at 3% interest as an investment.

Suppose for example that be bad chosen to withdraw tbe money and had placed it in a savings account in bis bank at 3% interest and after 13 years bad died testate naming bis wife as beneficiary in bis Will. That money in tbe savings account certainly would be subject to inheritance tax.

What is tbe difference?

What difference does it make whether be left tbe money in a bank or with tbe Insurance Company? It is an investment in either case. He bad tbe right to withdraw tbe money at any time up until the very day be died. It was bis money. Tbe instrument attached to tbe policy executed May 21, 1946, directed that tbe settlement should be made with George O. Bowles. He bad full control as beneficiary over this money for thirteen years up to tbe date of bis death when it was to be paid to bis “contingent” beneficiary, Katherine Bowles.

For these reasons, it is my opinion that tbe money on deposit with tbe Company is taxable and exceptions of tbe Department of Taxation are consequently sustained and appeal bond is fixed at $100.00.