Case Name: County Board of Tax Sup'rs of Jefferson County et al. v. Helm
Court: Kentucky Court of Appeals
Jurisdiction: Kentucky
Decision Date: 1944-06-16
Citations: 297 Ky. 803
Docket Number: 
Parties: County Board of Tax Sup’rs of Jefferson County et al. v. Helm.
Judges: Whole Court sitting.
Reporter: Kentucky Reports
Volume: 297
Pages: 803–809

Head Matter:
County Board of Tax Sup’rs of Jefferson County et al. v. Helm.
June 16, 1944.
L. S. Grauman for appellants.
Nelson Helm for appellee.

Opinion:
Opinion op the Court by
Stanley, Commissioner
Reversing.
The issue is the liability for ad valorem taxes of the right to proceeds of life insurance policies left with insurance companies outside Kentucky.
Under the provisions of ten policies on the life of the late T. Kennedy Helm, of Louisville, proceeds of the face value of $57,846.42 were retained by the several companies under a guarantee to pay the insured's widow, the appellee, Mrs. Elizabeth N. Helm, during her life, interest on the amounts at the rate of 3% per annum and such dividends as might be apportioned by the companies.' She has the right under each contract to withdraw all or any part of the principal in cash, subject to the right of the company to require ninety days' notice and to limit such withdrawals to four in any year and to a minimum of $5t) each. Upon the death of Mrs. Helm the principal sums, or so much thereof as may remain in the hands of the insurance companies, are payable equally to four children of the decedent and the appellee, or to the representatives of the children. Under another policy of insurance Mrs. Helm, as beneficiary, has exercised an option given her by it and left $1,057 with the insurance company on substantially similar terms. The total cash value of the property is, therefore, $58,903.42.
In recent years we have had questions of the applicability to intangible rights in trust funds located without the state of the mandate of the Constitution that all property not exempted from taxation shall be assessed at its fair cash value. Section 172, Constitution of Kentucky. In this case no question of the situs is raised since the statutes provide that the situs of intangible personal property shall be the residence of the beneficial owner. Kentucky Revised Statutes, 132.190, 134.060. It is not, however, the securities or cash itself that is sought to be assessed for ad valorem taxation but only the right in those intangibles which produce income.
We have held to be subject to ad valorem taxation the right of a resident to- receive the income for life from a trust held and administered by a non-resident trustee, the right being subject to forfeiture by a spendthrift clause. We regarded it as a third estate, carved out of the trust, namely, the basic right in property from which the income flowed, the present value of the life estate to be valued or capitalized according to the mortality tables. Commonwealth ex rel. v. Sutcliffe, 283 Ky. 274, 140 S. W. 2d 1028; Id., 287 Ky. 809, 155 S. W. 2d 243.
The recognition of the basis or source of income as an intangible right of property subject to ad valorem taxation, and the method of its valuation, was confirmed in Evans v. Boyle County Board of Education, 296 Ky. 353, 177 S. W. 2d 137. The owner had paid and agreed to pay a large sum to Centre College in consideration of an annuity of $10,800 a year during her life.
The circuit court was of opinion that this property right falls within the decision of Button v. Hikes, 296 Ky. 163, 176 S. W. 2d 112. There the beneficiary of insurance received guaranteed interest on the proceeds left with the company during her life, but in no event was she entitled to receive or dispose of or direct the payment of the corpus- except that she should survive all of her children and their descendants. She could not collect, assign, alienate, commute or pledge the principal or her rights under the contract. Since throughout the life of the Commonwealth, under several Constitutions, the Legislature had never specified or classified the proceeds of life insurance or rights arising therefrom for ad valorem taxation, and the administrative officials had never undertaken to subject the same under the general and broad language of the constitutions and the statutes, the court in a four to three decision held under the doctrine of contemporaneous construction and the historical immunity that the right from which the income or interest arose, namely, the obligation of the insurance company, was not subject to ad valorem taxation. In reaching the decision regard was had for the practical operation and effect of holding such right to be assessable, which would have been to impose a tax upon an unalienable protection which a man had made for his widow, and possibly upon insurance contracts of all kinds.
The rights of the beneficiary in the instant case are different. Here the beneficiary may call for payment of the whole sum and reduce it even to manual posses •sion. She may subject it all to absolute disposition at will. Here is an insurance contract completely matured, payment only being suspended. Unlike the Hikes case, where the beneficiary had merely an interest in the profits of an insurance contract, the beneficiary here has a vested interest in the principal as well as in its profits. Here is a definite and certain chose in action. There is no distinction to be drawn between this and the ownership of a promissory note maturing upon demand. It is •conceded by the appellee that should she exercise the right to collect the principal, the money would be taxable in her hands or if placed to her credit in a bank. We think, like a time deposit, subject to withdrawal, the fund is now constructively in her possession.
In Wilkin v. Board of Commissioners, 77 Okl. 88, 186 P. 474, the taxability of certificates issued by an insurance company by which it bound itself to pay to the beneficiary the proceeds of a life policy in installments throughout a period of years was sustained. The Oklahoma statutes, as do ours, tax all property and they classified annuities as a proper subject of taxation. The •court denied the arguments of the owner that the certificates had no present value because they were not capable of being sold or assigned, and that the money evidenced by the certificates was and continued to be until the payment of each installment the property of the insurance company ánd therefore did not constitute property in the hands of the beneficiary. We think tlie taxability of the property right in the instant case is •even clearer than that.
It must be admitted that the difference between this .state of fact and that presented in the Hikes case is a narrow one. But the court, speaking again through a majority, is not willing to extend the doubtful construction reached in .the Hikes case, that the property was not subject to assessment for ad valorem taxation, even to cover the close distinction. The property right of Mrs. Helm must, therefore, be deemed subject to ad valorem taxation even as was similar rights in the analogous •cases cited, and in Commonwealth v. Madden's Executor, 265 Ky. 684, 97 S. W. 2d 561, 107 A. L. R. 1379, in which general deposits of a citizen of Kentucky in a New York bank was held to be taxable here. The reasoning of that opinion on the point in every respect justifies and requires this decision.
Wherefore the judgment is reversed for consistent proceedings.
Whole Court sitting.