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PRICE DANIEL Au- 11. TEXAS ATTORNEY

GENERAL 1

December 13,1949 

# Mrs,8.El,sapp Opinion No:1VG!965 Director andExecutive Secretary Teacher Retirement System of Texas Re: Payment of accumulated Austin, Texas contributions ofmember 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 onthe following circumstances:

‘“1, A **member** ofthe Teacher Retirement Systam designated her husband as be~neficiary to receive her accumulated deposits ifdeath 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 ahusband, am Io+rrect in assuming that the money should be refunded 

### rccerding to the laws of **descent** and distribution ofTexas?

‘2. A member designated her husband as benefi**ciary,** 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 ofthe second husband. Will the former designation hold or should the money be paid to the husband with whom she was living atthe time ofher **death?** ***** **We assume**  that the designation ofthe named beneficiary in each instance mentioned inyour request was made on the **form** adopted by the Retirement System, and further that the two membars ofthe Retirement System involved herein died intestate We are ofthe opinion that the s-e conclusion is applicable to each. .

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

ofthe two situations and they will ba discussed together.

The questions presented have obviously arisen because ofthe 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 onthe part ofbeneficiariesin life insurance policies 1should be applied to the party designated to receive paid in contributions inthe event ofiha death&&e member prior to retirement.

The Act creating the Teachers’ Retirement System, Article 2923-l V,C,S;, ingeneral sets upa system wher,eby the teachers of the public schools may be retired for length of service or disability. Itprovides icr retirement or disability benefits inthe form of annuities payable inpart out of sums contributed from the salaries of the teacher members ofthe System, and the balance out of fr:nds contributed by the State, Upon retirement the memb?r is eniitled to receive a retirement allowance inthe form of an annuity which is derived from accumulated contributio-s credited to his or her account inthe Teacher Saving Fund ai ,i:e timneof retiresnent and from certain credits allowed for service prior ia tne establishment ofthe System, Woods y.2Reilly, 9.47Tex: 586, 218S.W.Zd 437 (19,49).

With reference to contri!:utions paid into the System by the members the Act specifically provides inSubsection 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 ofthe person insured. Drane v. Jefferson Standard Life Ins. Co., 139 Tex. 101, 161S.W,2d 1057(1942). The insurable interest which one spouse has inthe life ofthe 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 efthe iksurance but.also atthe time ofthe loss, McBride v. Clayto& l&g Ten. 71, 166S.W.Zd 125 (19421, the interest ef the divorce* apeuse named as beneficiary terminates upon the granting ofthe 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 amember cease to be ateacher or auxiliary employee except by death or retirement under the provisions ofthis Act, he shall, upon the filing offormal application therefor, be paid infull the amount ofthe accumulated contributions standing to the credit of his individual account inthe Teacher Saving Fund, and his account shall thereupon be closed,

“(b) 

### Amember may by written designation in such form as the Board ofTrustees may prescribe, provide that the accumulated contributions standing to his individual account shall be paid in the event ofthe death ofthe member before retirement, to the beneficiary named in such written designation; and ifthe member shall die before retirement, his accumulated contributions shall upon application be paid to $& beneficiary e desimted, ifthe beneficiary. survives the member. 

### Themembers may change the beneficiary desipnate& to r+ceive his accuPaulat& *sits in case ofde&& 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. “Ent&eevent the member dies before retirement tiithout so dasignatfng.o beneficiary to receive his accurm@ted cantributions, norinevent the designated beneficiary gre4eceases the member, his accumulabedr contribution~s standin to his credit inthe **Teacher SW**  ing Fund **shall be**  **p@x** tohis &%aW.

. Oa* 4 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 amember upon re* tirement. For the reasons hereafter discussed, we have conclud@ that the contributions in question are not insurance ~Mdare 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 ofthe New York City khnp1oyees’ Retirement System and to. 

### 'r which the estate or designated nominee ofthe employee were to have the same refunded inthe event of death before retirement) contained none ofthe 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 atransfer made toMrs. B. B. Sapp, Page 4 (Opinion V-965)

take effect at or after decedent’s death, but, onthe contrary, that itwas insurance onthe decedent’s life,

‘“With this contention we cannot agree.

‘“The purpose ofthe deductions from decedent’s salary and the contribution made by the City ofNew York was to build up afund 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 4percent. 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, nomore and no less. There is no element of insurance inthis. -- “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 ofthe Estate ofMary V. Fitxsimmons, 158 ,Misc. 789, 287 N.Y.S. 171, inwhich itwas held that tke amount received **under a**  similar **statute** from the Teachers’ Retirement System was exempt from tha New York Estate Tax as insurance. Itdoes not appear that any at-. ’ tempt was made inthat case to differentiate between the amount refunded and the amount paid as adeath 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 inthis case.* To the same effect is Wilson’s Estate v. Collector ef~lnternal Revenue, 42 B.TJA. ll96 (194Q), wherein itwas held that funds contributed to the teachers’ retirement fund **by** ateacher member who d.iedbefore retirement, couM not be considera& as kswance**Mrs.** B. B. Sapp, Page 5 (Opinion V-965)

within the meaning ofthe Revenue Act of 1926.

It is also pertinent to observe that nothing is contained inthe 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 inthe event of death ofthe member have an insurable interest, 4that the interest ofa spouse named as beneficiary ofthe sum payable on the death ofthe 

### other spouse from the teachers’ retirement fund did not terminate by reason of adivorce ,subsequent to the designation in the absence ofawritten notice to the retirement board changing the beneficia*y.’ Wolf v. lebe, 242 Wis, 650, 9N.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 ofthe member.” Wis. St; 1941, g4250 (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 amember die before retirement, the account ofhis accumulated ‘contributions standing to the credit of his individual account shall be paid as provided by the laws ofdescent and distribution of Texas unless he has directed the account& be paid otherwise.w This same language was re-enacted in the 1941amendment, Acts 47th Leg.. R.S., 1941, Ch. 376, p*610, and is the form in which the section stood at the time ofmaking the designations inquired about inyour request. The 51st Leg., R.S. 1949, Ch. 139, p. 244, ~-ended said section so as to read as above quoted inthis opinion. 4/ See footnote 2above. 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 1herein.Mrs. B. B. Sapp, Page 6 (Opinion V-965)

Having concluded that the accuntulated contributions are not insurance, we turn now to the question ofwhether adivorce amounts to a revocation ofthe designation oftthe party tm ~ce4ve such accumulated contributions inthe 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 ahusband 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 ofthe bequest to the former wife by reason ofthe diverce, observing that:

“We **do** not find inthis record any sound basis for helding a revocation ofthe will ‘by iinplication.’

‘“InMorgan v. Davenport, 68 Tex. 230, at page 2,37, our Supreme Court said: “We therefore hold that under the statutes ofthis state there can be no su,ch thing as the revocation of avalid written will, unless the same be revoked in one ofthe manners prercribed by the statute.’ “The case before us presents atypical illustrrtion ofthe 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 57Anx. 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 ofthe d,ivprce and the death ofthe test,ator, the letter having ample llepertunity to change his will during that tinae. ~D0mis equaIly prppfic&le te the facts before us. Inone instance, under the facts submitted, the member ofthe Teachers’ jlystem had two years after the granting ofthe divorce inwhich to change the a’esignatien ofthe 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 itbeen so desired..

One further question,remains. It relates to the fact i9prt the teacher member, at the time ofmaking 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 ofthe word “husband” **used** inthe designation is merely descriptive, andthat 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, 130Fla. 1177, 138 So, 778 (1932). Inthis 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 ewill and devises property to him by name and identifies him as her husband, he does **not take** 

‘es the husband’ but he takes as anamed beneficiary end the word ‘husband’ is merely descriptio personae.’ Ineach ofthe two instances presented the teacher member had executed and filed with the Retirement System adesignation ofbeneficiary to receive accumulated contributions inthe Teacher Saving Fund ofthe System inthe event ofdeath before retirement. .This w&s done onthe foFm prescribed by the System which specifically provides that should the member decide to have his 

### orher accumulated contributions paid to someone other than the party, or person named, such change will be made inwriting on aform 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 ofthe contributions es they sew fit. See concurring opinion ofJustice Garwood inWoods v. Reilly, supra. For reesons known only to such deceased members they did not see fit tomake such changes.

Accordingly you are advised that the accumulated contributions ofthe two System members should be paid to the parties named end designated as beneficiaries.
._

SUMMARY

A husband or wife of amember ofthe Teachers’ Retirement System, designated by name as,beneficiary ofthe member’s accumulations inthe retirement fund inthe event ofthe death of such member prior to retirement, is not deprived ofthe right to such accumulations, by reeson of divorce subsequent to such designation. The accumulated payments provided for inArt. 2922-1, V.C.S., are not inthe nature of insurance. The Texas law dbes not require that the beneficiary have enMrs. B. B. Sapp, Page 8 (Opinion V-965)

insurable interest inthe life ofthe tescher. Beneficiaries may be changed upon divorce by written notice es provided by law. Yours very truly, ATTORNEYGENERALOF TEXAS

Exeautive Assistant

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# A&!

APPROVED:

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