concurring: I agree with the majority’s holding that the commuted value of the payments is taxable as a part of the estate of the decedent, but I would reach that result under a different provision of the statute.
In my opinion, the commuted value of the payments to be received by the decedent’s surviving spouse or issue is includable in the gross estate of the decedent under section 2033 of the 1954 Code.1 That section provides as follows:
SEO. 2033. PROPERTY IN WHICH THE DECEDENT HAD AN INTEREST.
The value of the gross estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death.
What we have here in each case is a simple contract between an employee and his employer to pay a death benefit in the form of an annuity to a designated beneficiary, if then living, in the event of the death of the employee while in the employ of the contracting party. The employer clearly became bound to make the payments in question, the consideration being “the continued services, advice and experience” of the employee. The fact that the decedent’s compensation was “fair, reasonable and adequate” without regard to payments to be made after his death is immaterial. The employer was willing to pay something more “as an inducement to the Employee to remain in the Company’s employ.”
The right to the benefits in question could only arise as a result of the fulfillment of the conditions of his employment by the decedent. Until those conditions were fulfilled — which could not occur up until the date of the death of the decedent — all that the beneficiaries had was a mere expectancy or hope that the decedent would perform his part of the agreement, thereby making unconditional the obligation of the employer to pay the benefit. Salesky v. Hat Corporation of America, 244 N.Y.S. 2d 965.
In my opinion, the majority erroneously concluded that the beneficiary acquired a vested interest in the payments upon execution of the contracts. By stipulation, the parties agreed that the decedent was employed “at the will” of his employers. I do not interpret the cases 2 cited by the majority as supporting the view that the discharge of the decedent by his employer without cause prior to death would not defeat the beneficiary’s right to the payments.
The contracts gave rise to nothing more than the assignment to designated beneficiaries of future income which would result only upon the fulfillment of the obligations of his employment by the decedent. Bernard v. United States, 215 F. Supp. 256 (S.D.N.Y. 1963); Miller v. United States, 389 F. 2d 656 (C.A. 5, 1968). Prior to the decedent’s death, the only “property” or “interest” stemmed from the contract itself. The decedent was a “party” to that contract. The contract provided that it “shall be binding upon and inured to the benefit of the parties, their successors, heirs, executors, administrators or other legal representatives.” All rights thereunder were not only reserved by the decedent up to the time of his death, but the right to enforce the terms of the contract passed to his executor or administrator. Such a contract has been 'held to constitute “property” in which the decedent had an “interest” within the meaning of section 2033. Goodman v. Granger, 243 F. 264 (C.A. 3, 1957) 3
1 believe it to be immaterial that the decedent during his lifetime could not have received any payments under such a contract. Since the benefits under the contract are treated as having been earned by the decedent during his lifetime for income tax purposes — and in this case earned up to the very instant of his death — the decedent must necessarily be regarded as the “source” of the payments. Bernard v. United States, supra. Consistency would seem to require the inclusion of such payments, which the decedent could not effectively transfer for income tax purposes, in the decedent’s estate for purposes of the estate tax. Riegelman's Estate v. Commissioner, 253 F. 2d 315 (C.A. 2, 1958), affirming 27 T.C. 833 (1957).
In Riegelman's Estate v. Commissioner, supra, the decedent was a partner in a law firm. The partnership agreement provided that, upon the death of a partner, the partnership would not be dissolved, and the estate of a deceased partner would be entitled to receive certain Ipayments from the continuing firm. The question presented was whether the value of the payments attributable to services by the partnership after the death of the decedent was includable as part of the gross estate under section 811(a) of the Internal Eevenue Code of 1939, which provision was reenacted as section 2033 of the 1954 Code. In considering this question, the court first looked to section 691 of the Code to determine whether the payments in question should be regarded as “income in respect of a decedent.” The court said:
We think, however, that there is a more fundamental reason for holding Bull inapplicable to the case at bar. That decision was handed down in 1935 and involved estate tax liability accruing during the year 1920. During the intervening years Congress has enacted substantial changes in the Internal Revenue Code. We deem of particular importance § 134(e) of the Act of October 21,1942, 56 Stat. 831, incorporated as § 126 of the Internal Revenue Code of 1939, 26 U.S.C. & 126. That section introduced into the income tax provisions of the Code the concept “income in respect of a decedent.” * * * Subsection (c) of that section provides for a deduction of the portion of the estate tax attributable to inclusion in the estate of the right -to receive such income. A reading of subsection (c) indicates that it contemplates that an estate tax is payable on the value for estate tax purposes of all the items described in subsection (a) (1). The question here, therefore, is whether the post-death partnership income received by Riegelman’s estate constitutes “income in respect -of a decedent,” for it is clear that right to receive these amounts was acquired by the estate from the decedent. * * *
After concluding that the payments were “income in respect of a decedent,” the court further concluded that the stipulated value of the right to receive such ipayments was includable in the estate of the decedent for the purpose of determining an estate tax. The rationale of this decision would be equally applicable to any payment which constitutes income in respect of a decedent under section 691(a) (1) regardless whether the payee is a person described in substection (A), subsection (B), or subsection (C).
I believe that the reasoning in the Riegelman case would require the inclusion of the commuted value of the payments in question in the estate of the decedent under section 2033, I.E.C. 1954. Even in the absence of that decision, however, my conclusion would be the same.
For the most part, prior cases which might seem to be contrary to this conclusion are readily distinguishable. We are not concerned here with a survivorship annuity such as was involved in Molter v. United States,4 146 F. Supp. 497 (E.D.N.Y. 1956), and Bahen’s Estate v. United States, 305 F. 2d 827 (Ct. Cl. 1962), or with survivorship benefits under plans which could be terminated at the discretion of the employer such as were involved in the Estate of Albert L. Salt, 17 T.C. 92 (1951), and the Estate of William S. Miller, 14 T.C. 657 (1950). Nor are we concerned with voluntary or gratuitous payments by an employer to the spouse or surviving family of a deceased employee such as were involved in the Estate of William E. Barr, 40 T.C. 227 (1963), and the Estate of Raymond W. Albright, 42 T.C. 643 (1964), reversed on another point 356 F. 2d 319 (C.A. 2, 1966). Finally, we are not concerned with specific sums or property which have been committed and set aside by the employer for the benefit of the employee to be paid over to his estate upon his death. Estate of Albert B. King, 20 T.C. 930 (1953) ; Estate of Eugene F. Saxton, 12 T.C. 569 (1949).
In the case before us, the decedent and his employer “bargained” for the payment of a specified sum to designated beneficiaries in consideration of continued services to be rendered by the decedent. In similar cases, the courts have consistently held that the agreement gave rise to a “transfer” which was includable in the estate of the deceased employee as a transfer to take effect in possession or enjoyment after the death of the decedent under section 811(c) of the 1939 Code. Worthen v. United States, 192 F. Supp. 727 (D. Mass. 1961); Estate of William L. Nevin, 11 T.C. 59 (1948); Estate of Paul G. Leoni, a Memorandum Opinion of this Court dated Oct. 20, 1948. What is of particular significance is that in those cases the courts uniformly held that there was a “transfer,” but based their decision on the fact that the transfer took effect in possession or enjoyment at or after death. In my opinion, there was nothing to transfer in this case until the death of the decedent.
With respect to the applicability of section 2033 to this type of case, I would not follow the opinion in Estate of Edward H. Wadewitz, 39 T.C. 925. See also Kramer v. United States, 406 F. 2d 1363 (Ct. Cl. 1969). In the Wadewitz case the Tax Court decided that section 2039 was applicable so that the decision with respect to section 2033 was not considered by the Court of Appeals. In the Kramer case, the Court of Claims held that the only property interest of the decedent terminated upon his death, and therefore could not be reached by section 2033. In the case before us, if the decedent ever had any property interest in the contracts, that interest certainly was not terminated upon his death. Under the terms of the contracts his executors or administrators succeeded to that interest.
I do not believe it material whether the beneficiaries could bring suit on the contracts in Massachusetts as party plaintiffs. See Saunders v. Saunders, 154 Mass. 337, 28 N.E. 270 (1891). With apparent foresight the decedent anticipated that difficulty. Under the terms of the contracts, tbe decedent specifically bound bis “executors, administrators or other legal representatives.” As a practical matter, not only would the decedent’s administrators be fully justified in enforcing the contracts for the benefit of the petitioner’s spouse, but a failure to do so would constitute a breach of an obligation or duty which they undertook as a part of the estate. I find it difficult to believe that an administrator who undertook such a duty or obligation would be charged on -the grounds that any resulting expense was not warranted. Cf. Comstock v. Bowles, 295 Mass. 250, 3 N.E. 2d 817 (1936).
With respect to the question of value, regardless whether the decedent’s interest in the agreements is includable in his gross estate under section 2033 or 2035,1 agree that the respondent has properly valued the payments. Goodman v. Granger, supra.
Dawson and Simpson, JJ., agree with this concurring opinion.reenactment substantially without change of sec. 811(a) of the Internal Revenue Code of 1939.
Patton v. Babson Statistical Organization, 259 Mass. 424, 156 N.E. 534 (1927) ; Ravage v. Johnson, 316 Mass. 558, 56 N.E. 2d 25 (1944) ; Karez v. Luther Manufacturing Co., 338 Mass. 313, 155 N.E. 2d 441 (1959).
Although this Court stated In Estate of Edward H. Wadewitz, 39 T.C. 925, 931 (affd. 339 E. 2d 980 (C.A. 7, 1964)), that the sole question presented In the Goodman ease was the determination oí fair market value, the fact remains that unless the contracts In question were held to constitute “property” In which the decedent had an “Interest" under sec. 811 (a), I.R.C. 1939, there was nothing to value for estate tax purposes.
For the estate tax consequence of the same survivorship plan under the 1954 Code, see Gray v. United States, 410 F. 2d 1094 (C.A. 3, 1969), affirming 278 F. Supp. 281 (D.N.J.1967).