. - 

PRICE DANIEL 

Au- 11. TEXAS 

ATTORNEY GENERAL 1 

December 13,1949 

Mrs, 8. El, sapp Opinion No:1 VG!965 

Director and Executive Secretary 

Teacher Retirement System of Texas Re: Payment of accumulated 

Austin, Texas contributions of member 

of Teacher Retirement 

System who died bedere 

Dear Mrs. Sapp: rdireaasnt. 

Your request~for an opinion reads in part as follows: 

“Please instruct me as to the proper dispositien 

of claims based on the following circumstances: 

‘“1, A member of the Teacher Retirement Systam 

designated her husband as be~neficiary to receive her 

accumulated deposits if death occurred before retirement was in effect. The said member, two years after 

making the said designation, obtained a divorce from 

the said husband, Two years subsequent to the divorce 

the said member died; said member being survived by 

her mother. Since the designation specified husband 

a& since the said member died without a husband, am 

I o+rrect in assuming that the money should be refunded 

rccerding to the laws of descent and distribution of Texas? 

‘2. A member designated her husband as beneficiary, later obtained a divorce from said husband and 

remarried. The said member failed to change her former designation and now has died, having died the wifp 

of the second husband. Will the former designation hold 

or should the money be paid to the husband with whom 

she was living at the time of her death? * 

We assume that the designation of the named beneficiary 

in each instance mentioned in your request was made on the form 

adopted by the Retirement System, and further that the two membars of the Retirement System involved herein died intestate We 

are of the opinion that the s-e conclusion is applicable to each 
. . 

Mrs. B. B. Sapp, Page 2 (Opinion V-965) 

of the two situations and they will ba discussed together. 

The questions presented have obviously arisen because of the insistence on the part of interested parties that 

accumulated contributions paid under the Teachers’ Retirement System are in the nature of insurance, and hence the Texas 

rule with respect to insurable interest on the part of beneficiariesin life insurance policies 1 should be applied to the party 

designated to receive paid in contributions in the event of iha 

death&&e member prior to retirement. 

The Act creating the Teachers’ Retirement System, 

Article 2923-l V,C,S;, in general sets up a system wher,eby 

the teachers of the public schools may be retired for length of 

service or disability. It provides icr retirement or disability 

benefits in the form of annuities payable in part out of sums 

contributed from the salaries of the teacher members of the 

System, and the balance out of fr:nds contributed by the State, 

Upon retirement the memb?r i s eniitled to receive a retirement allowance in the form of an annuity which is derived from 

accumulated contributio-s credited to his or her account in the 

Teacher Saving Fund ai ,i:e timne of retiresnent and from certain 

credits allowed for service prior ia tne establishment of the 

System, Woods y.2 Reilly, 9.47 Tex: 586, 218 S.W.Zd 437 (19,49). 

With reference to contri!:utions paid into the System 

by the members the Act specifically provides in Subsection 

6, Section 5, Art. 2922-1, V.C.S., as amended, Acts Slst Leg., 

R.S, 1949, Ch. 139, p* 244, that: 

l/ No person can be named beneficiary in a life insurance policy unless he has an insurable interest in the life of the person insured. Drane v. Jefferson Standard Life Ins. Co., 139 

Tex. 101, 161 S.W,2d 1057(1942). The insurable interest which one 

spouse has in the life of the other ceases upon divorce oKthe puties, Northwestern Mut, Life Ins* Co. v. Whiteselle, 221 SW. 575 

(Ter.Comm.AppP,, 1920); and thus, under the Texas rule reqddng 

the presence ef insurable interest not only at the time ef the iksurance but.also at the time of the loss, McBride v. Clayto& l&g 

Ten. 71, 166 S.W.Zd 125 (19421, th e interest ef the divorce* apeuse 

named as beneficiary terminates upon the granting of the divorce. 

&tch v. Hatch, 80 SW. 4ll (Tax. Civ. App. 19g4, error ref.). 

Northwestern Mut, Life Inc. CQ. v.. WhiteselleJ supra. 
Mrs. B. B. Sapp, Page 3 (Opinion V-965) 

“(a) Should a member cease to be a teacher or 

auxiliary employee except by death or retirement 

under the provisions of this Act, he shall, upon the 

filing of formal application therefor, be paid in full 

the amount of the accumulated contributions standing 

to the credit of his individual account in the Teacher 

Saving Fund, and his account shall thereupon be closed, 

“(b) A member may by written designation in such 

form as the Board of Trustees may prescribe, provide 

that the accumulated contributions standing to his individual account shall be paid in the event of the death 

of the member before retirement, to the beneficiary 

named in such written designation; and if the member 

shall die before retirement, his accumulated contributions shall upon application be paid to $& beneficiary 

e desimted, if the beneficiary. survives the member. 

The members may change the beneficiary desipnate& to 

r+ceive his accuPaulat& *sits in case of de&& befgrd 

retir~nt, or~rbvR46e c &sQxWUa pawfosely made, 

w filiq w% the Boar& of Trustees in s&i forrs *8 it 

may require, notice of such change er revacrtion. 

“En t&e event the member dies before retirement 

tiithout so dasignatfng.o beneficiary to receive his accurm@ted cantributions, nor in event the designated 

beneficiary gre4eceases the member, his accumulabedr 

contribution~s standin to his credit in the Teacher SWing Fund shall be p@x 4 to his &%aW. . O a* 

All that is involved here are the contributions paid into 

the Systep by one of its members. No question is presented with 

respect te any Bortion of the annuity payable to a member upon re* 

tirement. For the reasons hereafter discussed, we have conclud@ 

that the contributions in question are not insurance ~Md are mot,. 

therefore, subject to the rules of *insurable interest.” 

No Texas court has passea on the question, The Pederal 

courts have held that the refunding, of contributions priid a member of the New York City khnp1oyees’ Retirement System and to. 'r 

which the estate or designated nominee of the employee were to 

have the same refunded in the event of death before retirement) 

contained none of the elements of insurance. f(ernochan v. United 

States, 29 F.Supp. 860 (Ct. Cl. 1939, certiorari denied, 309 U.S. 675),. 

The court said: 

“The plaintiff insists that the widow did not receive this sum as the result of a transfer made to 
Mrs. B. B. Sapp, Page 4 (Opinion V-965) 

take effect at or after decedent’s death, but, on the 

contrary, that it was insurance on the decedent’s life, 

‘“With this contention we cannot agree. 

‘“The purpose of the deductions from decedent’s 

salary and the contribution made by the City of New 

York was to build up a fund from which the employee 

could be paid an annuity upon his retirement. This is 

evidenced by the fact that when the System w,as released 

from the obligation to pay the annuity, either by applicant’s withdrawal during life and before retirement, or 

by death before retirement, he, or his estate, or nominee, 

was then entitled to have returned all amounts dad&ted 

from his salary, plus interest at 4 percent. Upon with- 

.drawal or death the contract to pay the annuity was cancelled and the consideration returned. The exact amount paid, plus interest, was refunded, no more and 

no less. There is no element of insurance in this. 

-- 

“Bad the widow upon the decedent’s death been entitled to receive the annuity payable to the employee 

upon the retirement, there would be room for tke contention that the contract was a contract of insurance, 

but she was not entitled to this, but only to a refund of 

the amount paid, plus interest. 

“Our attention has been directed to the case of In 

the Matter of the Estate of Mary V. Fitxsimmons, 158 

,Misc. 789, 287 N.Y.S. 171, in which it was held that tke 

amount received under a similar statute from the Teachers’ Retirement System was exempt from tha New York 

Estate Tax as insurance. It does not appear that any at-. 

’ tempt was made in that case to differentiate between the 

amount refunded and the amount paid as a death benefit. 

*Even though we were bound by the decisions cf;the 

simte courts in construing the Federal Estate Tax Act, 

we would not feel bound by these decisions, because in 

#em the point was not raised that is raised in this case.* 

To the same effect is Wilson’s Estate v. Collector ef~lnternal Revenue, 42 B.TJA. ll96 (194Q), wherein it was held that funds 

contributed to the teachers’ retirement fund by a teacher member 

who d.ied before retirement, couM not be considera& as kswance 
Mrs. B. B. Sapp, Page 5 (Opinion V-965) 

within the meaning of the Revenue Act of 1926. 

It is also pertinent to observe that nothing is contained 

in the Act in question requiring the person designated by the 

member to receive accumulated contributions to have an ‘insurable interest” in the life of the system member. The Legislature 

could have easily so provided,2 but it has not seen fit to do so. 3 

Indeed, the Wisconsin Supreme Court has held under its Teachers’ 

Retirement Act, which requires that the party designated to receive accumulated contributions in the event of death of the member have an insurable interest, 4 that the interest of a spouse 

named as beneficiary of the sum payable on the death of the other 

spouse from the teachers’ retirement fund did not terminate by 

reason of a divorce ,subsequent to the designation in the absence 

of a written notice to the retirement board changing the beneficia*y.’ 

Wolf v. lebe, 242 Wis, 650, 9 N.W.2d 124 (1943). 

2/ The Wisconsin Teachers” Retirement Act specifically provides 

that the person designated to receive accumulated, contributions 

shall have “an insurable interest in the life of the member.” Wis. 

St; 1941, g 4250 (1). 

3/ Subsection 6, Section 5, Art. 2922-1, V.C.S., as originally enacted, Acts 45th Leg., R.S.. 1937, Ch. 470, p. 1178, provided in 

part: *Should a member die before retirement, the account of his 

accumulated ‘contributions standing to the credit of his individual 

account shall be paid as provided by the laws of descent and distribution of Texas unless he has directed the account& be paid otherwise.w This same language was re-enacted in the 1941 amendment, Acts 47th Leg.. R.S., 1941, Ch. 376, p* 610, and is the form in 

which the section stood at the time of making the designations inquired about in your request. The 51st Leg., R.S. 1949, Ch. 139, p. 

244, ~-ended said section so as to read as above quoted in this opinion. 

4/ See footnote 2 above. 

5/ This result would not follow in Texas because under the Texas 

rule the insurable interest must be present at both the time of 

issuance and the loss, See cases cited in footnote 1 herein. 
Mrs. B. B. Sapp, Page 6 (Opinion V-965) 

Having concluded that the accuntulated contributions 

are not insurance, we turn now to the question of whether a divorce amounts to a revocation of the designation oftthe party tm 

~ce4ve such accumulated contributions in the event of death of 

the member, We think not. The case nearest in point is &g,&& 

158 S.W.2d 116 (Tex, Civ. App. 1947, errer ref. W.O. 

in a husband bequeathed a portion of his estate to his 

eeuse. Later the parties were divorced, and the husband rernarried without changing his will. The court held that there was no 

revocation of the bequest to the former wife by reason of the diverce, observing that: 

“We do not find in this record any sound basis 

for helding a revocation of the will ‘by iinplication.’ 

‘“In Morgan v. Davenport, 68 Tex. 230, at page 

2,37, our Supreme Court said: “We therefore hold that 

under the statutes of this state there can be no su,ch 

thing as the revocation of a valid written will, unless 

the same be revoked in one of the manners prercribed 

by the statute.’ 

“The case before us presents a typical illustrrtion of the lack of care that the average American 

citisen takes in seeing that his estate is dispcadd 6f 

rcccrding to his personal desires, after his demise.” 

Likewise the rule stated in 57 Anx. Jur. 924, Wills, Sec. 

1367, that the ““presmrxption that the test&x intended t&t the 

denee should take although divorced is. strongly fortified. . . . 

where a lapse of some time eccurs between the granting of the 

d,ivprce and the death of the test,ator, the letter having ample l lepertunity to change his will during that tinae. ~ D 0m is equaIly prppfic&le te the facts before us. In one instance, under the facts 

submitted, the member of the Teachers’ jlystem had two years 

after the granting of the divorce in which to change the a’esignatien of the party to receive her accuroulated contributions, and 

failed to do so. No facts are presented in either instance reflecting that the member was in any way prevented from making suck 

change had it been so desired.. 

One further question,remains. It relates to the fact i9prt 

the teacher member, at the time of making the.designa~iwnen’the 

term provided by the System, showed that the individual named tc 

receive accumulated contributions, held the relationship to her mf 

“husband.nD We have concluded that the use of the word “husband” 

used in the designation is merely descriptive, and that the person 

l stually named is controlling, Murnhy v. Markis, 98 N.J.Eq. 153, 
Mrs. B. B. Sapp, Page 7 (Opinion V-965) 

130 A. 840 (1925); State ex rel Kuehmsted v. Hewitt, 130 Fla. 1177, 

138 So, 778 (1932). In this last case the court said: 

“The rule seems to be well settled that where e 

woman dies intestate, her husband, surviving, takes 

‘as husband’ under the statute of descents, but when 

she leaves e will and devises property to him by name 

and identifies him as her husband, he does not take 

‘es the husband’ but he takes as a named beneficiary 

end the word ‘husband’ is merely descriptio personae.’ 

In each of the two instances presented the teacher member had executed and filed with the Retirement System a designation of beneficiary to receive accumulated contributions in the 

Teacher Saving Fund of the System in the event of death before retirement. .This w&s done on the foFm prescribed by the System 

which specifically provides that should the member decide to have 

his or her accumulated contributions paid to someone other than 

the party, or person named, such change will be made in writing 

on a form prescribed by the System and that such change will be 

filed with the System. No such change w&s made by either member 

according to the facts before us0 Such members had a right to 

make such change and dispose of the contributions es they sew fit. 

See concurring opinion of Justice Garwood in Woods v. Reilly, supra. 

For reesons known only to such deceased members they did not see 

fit to make such changes. 

Accordingly you are advised that the accumulated contributions of the two System members should be paid to the parties named 

end designated as beneficiaries. 

._ 

SUMMARY 

A husband or wife of a member of the Teachers’ 

Retirement System, designated by name as,beneficiary 

of the member’s accumulations in the retirement fund 

in the event of the death of such member prior to retirement, is not deprived of the right to such accumulations, by reeson of divorce subsequent to such designation. The accumulated payments provided for in Art. 

2922-1, V.C.S., are not in the nature of insurance. The 

Texas law dbes not require that the beneficiary have en 
Mrs. B. B. Sapp, Page 8 (Opinion V-965) 

insurable interest in the life of the tescher. Beneficiaries may be changed upon divorce by written notice es provided by law. 

Yours very truly, 

ATTORNEYGENERALOF TEXAS 

Exeautive Assistant 

cDM:v A&! 

APPROVED: 

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