210 Conn. 277 | Conn. | 1989
The issue in this case is whether a mortgage debt as described in General Statutes § 12-350 (h)
On the decedent’s succession tax return, the defendant, Elizabeth H. Jacks, executrix of the decedent’s estate, reduced the value of the decedent’s interest in the Middlebury property by $150,000, the balance due on the CBT mortgage at the time of his death. The plaintiff, the commissioner of revenue services, disallowed the deduction and claimed as taxable the entire $330,000 value of the Middlebury property. The Probate Court, Lawlor, J., sustained the objection of the estate and ordered the commissioner to recompute the succession tax by allowing the estate a deduction for the mortgage debt to CBT. The trial court, Hart-mere, J., dismissed the commissioner’s appeal, holding that the debt was deductible for succession tax purposes, regardless of the source of payment. This appeal followed.
The computation of the Connecticut succession tax is based upon the net taxable estate. General Statutes § 12-344. The value of the net taxable estate is arrived
Section 12-342, therefore, when read in conjunction with § 12-350, creates an ambiguity in the phrase “reduce the gross taxable estate,” because of the poten
We turn first to the legislative history of what is now § 12-342. See Dubno v. Colby, 38 Conn. Sup. 54, 62, 458 A.2d 396 (1982). In 1929, the proceeds of life insurance policies payable at the death of the insured “to his estate, the executors of his will or the administrators of his estate” were first made explicitly subject to the succession tax by the legislature. Public Acts 1929, c. 299, § 4. In 1933, the legislature exempted “the proceeds of any policy of life or accident insurance payable to a named beneficiary,” while continuing to tax proceeds payable to an estate, its executors or administrators. General Statutes (Cum. Sup. 1933) § 487c. There is no indication, however, due to the absence of a public hearing or other transcribed proceedings relating to this legislation, why the legislature drew a distinction for succession tax purposes based upon the identity of the recipient of the proceeds of a policy. The legislature broadened the exemption in 1963 to include “such proceeds payable to a trustee or trustees under an inter vivos or testamentary trust . . . . ” Public Acts 1963, No. 514. The legislature did not disturb the clause that imposed the tax on the proceeds payable
The starting point for our analysis of § 12-350 is this court’s holding in Connelly v. Wells, supra, in which we construed General Statutes (Cum. Sup. 1953) § 923c (a), a predecessor of § 12-350. In Connelly, the tax commissioner maintained that the decedent’s estate was not entitled to deduct from the gross taxable estate the amount representing the balance due on a note of the decedent, when the note was secured by an assignment of the decedent’s life insurance policies, which were payable on his death to his wife. We observed in that case that at the time of the decedent’s death, the estate became primarily liable for repayment of the loan, and that the bank continued to have a claim
In 1969, the legislature amended the statute relating to deductions from the gross taxable estate, and inserted the provision that the enumerated deductions would be allowed, “provided they reduce the gross taxable estate.” Public Acts 1969, No. 524. The commissioner claims that this provision was not a technical amendment, but rather, that its purpose was to “counteract the effect of the Connelly decision,” by requiring that a debt be paid from taxable assets.We disagree. There is no indication in the legislative history that the General Assembly contemplated adding a new requirement that a debt must be paid from taxable assets to be properly deductible under § 12-350. Rather, the legislative history of No. 524 of the 1969 Public Acts indicates that the phrase “reduce the gross taxable estate” was enacted specifically to clarify confusion over the availability of a deduction for a widow’s allowance payable out of income, rather than from principal.
The commissioner claims that the mortgage debt did not “reduce the gross taxable estate” because it was not discharged with taxable assets. We disagree with the commissioner’s interpretation of this provision, however, because it focuses on a time frame other than that which is specified in § 12-350. When the decedent died, liability for payment of the debt passed to his estate, for which CBT retained a bona fide claim against the estate. See Connelly v. Wells, supra, 534. Thereafter, if Aetna had not paid CBT the amount for which the decedent was insured, the estate’s taxable assets would have been liable for payment of the indebtedness. Further, if the estate had discharged the mortgage debt immediately after the decedent’s death, before Aetna had paid CBT, the estate would have been
The commissioner maintains that the debt should be treated as having been extinguished at the death of the decedent, because “everyone knew Aetna would pay it off.” We will not base our decision, however, on the fortuity of the decedent’s having transacted for credit life insurance with a company capable of fulfilling its obligation, rather than one less financially sound.
Finally, the commissioner’s interpretation of § 12-350 would seriously undermine the legislature’s goal of uniformly exempting from state taxation all life insurance proceeds, regardless of the purpose for which the policy was purchased. As in this case, his interpretation would result in an indirect tax on otherwise tax exempt insurance proceeds, when the proceeds were used to discharge a debt that was the basis for a deduction under § 12-350. The commissioner has not given this court any persuasive reason why life insurance proceeds should be treated differently in such a situation. We
There is no error.
In this opinion the other justices concurred.
General Statutes § 12-350 provides in part: “In the case of the estate of a resident transferor, the net estate for the purposes of the tax imposed by the provisions of this chapter shall be ascertained by deducting from the gross taxable estate the following items . . . (h) the amount at the date of the transferor’s death of all unpaid mortgages upon real or personal property situated within this state, which mortgages were not deducted in the appraisal of the property mortgaged .... The foregoing deductions shall be allowed in the case of property transferred by will and by laws relating to intestate estates, provided they reduce the gross taxable estate. . . .”
General Statutes § 12-342 provides: “The provisions of sections 12-341 and 12-341b shall not apply to the proceeds of any policy of life or accident insurance payable to a named beneficiary or beneficiaries, including such proceeds payable to a trustee or trustees under an inter vivos or testamentary trust or the proceeds of any insurance policy of a decedent payable at his death to his estate, the executors of his will or the administrators of his estate. The proceeds of any insurance policy issued by the United States and generally known as war risk insurance, United States government life insurance or national service life insurance shall not be taxable within the provisions of this chapter.”
At oral argument, the commissioner acknowledged that credit life insurance is customarily payable to a named beneficiary. He claimed, nonetheless, that the broad tax exemption found in General Statutes § 12-342 does not apply to the insurance policy in the case at hand, because credit life insurance is purchased for a different purpose from ordinary life insurance. By the very terms of the statute, however, § 12-342 applies to the policy in this case. Section 12-342 contains no limitation or distinction based upon the purpose for which the insurance was purchased.
Senator John F. Pickett, Jr., for example, stated: “[A]t the present time under the succession laws of the State of Connecticut, the proceeds of an insurance policy payable to a named beneficiary are not subject to the succession taxes. However, for some strange reason, the proceeds of the policy payable to the estate are subject to the succession taxes. We think it makes good sense to be uniform about this and according to the intent of this bill, is to remove the succession tax implication or imposition on life insurance proceeds payable to the estate of a decedent.” 13 S. Proc., Pt. 7,1969 Sess., pp. 3095-96.
After Governor John Dempsey vetoed No. 784 of the 1969 Public Acts, the legislature overrode the veto, the records of its deliberations again indicating its desire to achieve uniformity in the treatment of insurance proceeds for purposes of the succession tax. 13 S. Proc., Pt. 8,1969 Spec. Sess., p. 263; see Dubno v. Colby, 38 Conn. Sup. 54, 62, 458 A.2d 396 (1982).
“The possibility of insurer failure, however, is neither minimal nor remote. At the end of 1984, the National Association of Insurance Commissioners rated more than one in five insurance companies in the United States as being in questionable health and requiring careful monitoring. See Donne, Guarantees of Safety for the Insurance Industry, N.Y. Times, Aug. 10, 1985, at 23, col 1.” B. McDowell, “Competition as a Regulatory Mechanism in Insurance,” 19 Conn. L. Rev. 287, 306 n.83 (1987).