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People v. Estate of Schilling

OPINION FILED AUGUST 5, 1976.

THE PEOPLE OF THE STATE OF ILLINOIS, PLAINTIFF-APPELLANT,

v.

THE ESTATE OF HERBERT L. SCHILLING, DECEASED, DEFENDANT-APPELLEE.



APPEAL from the Circuit Court of St. Clair County; the Hon. WILLIAM P. FLEMING, Judge, presiding.

MR. JUSTICE GEORGE J. MORAN DELIVERED THE OPINION OF THE COURT:

The State appeals from a judgment of the circuit court of St. Clair County overruling its objection to an inheritance tax return filed by the administrator of the estate of Herbert Schilling.

The issue on appeal is whether the benefits paid to a widow by a union pension plan upon the death of her husband are subject to Illinois inheritance tax.

Herbert Schilling, a plumber, was a member of the Plumbers' and Pipefitters' Union, Local 101. He died on March 29, 1974, when a house on which he was working collapsed. He was 54 years of age, and a resident of Illinois, when he died.

The probate division of the circuit court of St. Clair County appointed the Belleville National Savings Bank administrator of Schilling's estate. The bank, as administrator, filed an inheritance tax return in the circuit court evaluating the property passing from Herbert Schilling to his widow, Ruth Schilling, at $20,435.61. The bank did not include in this amount $16,392.69 paid from the union pension fund to the widow. The bank calculated that a tax of $8.71 was due on the widow's inheritance.

Under section 11 of the Inheritance Tax Act (Ill. Rev. Stat. 1975, ch. 120, par. 385), the State objected to the bank's failure to list the payment from the pension fund as part of the widow's inheritance, claiming that the amount Ruth Schilling had received from her husband was $36,828.30, on which a tax of $336.57, rather than $8.71, was due. At the hearing in the circuit court, the State introduced into evidence a copy of the pension plan and trust agreement of the Plumbers' and Pipefitters' Union, Local 101.

The provisions of the pension plan and trust agreement were as follows. The union's pension fund was to consist solely of employer contributions. Plumbing contractors were to contribute 75¢ to the fund for each regular, paid hour that the union's members worked for them, and double that amount for each overtime hour. The contractors were to pay their contributions to the trustee of the pension fund.

The trustee was authorized to invest the employer contributions in whatever properties and securities it thought were "sound and suitable," so long as at least 20% of the contribution were invested in United States government bonds. The inheritance tax return filed by the bank indicated that the money paid to Ruth Schilling from the pension fund came from a group annuity contract the trustee had purchased for the union's members.

An individual's interest in the pension fund was determined by his age and the length of his employment as a union member. At age 65, a member could retire and receive a pension for the rest of his life which equaled the number of hours worked by him for which his employers had contributed to the pension fund multiplied by a fixed percent per month. A pension board, consisting of three union men and three men representing employers, which administered the pension plan, could change the pension payments at any time upon the advice of an actuary.

If a pensioner died before the sum of all his pension payments equaled his nonforfeitable interest in the pension fund, the difference between that sum and his nonforfeitable interest was to be paid to his beneficiaries. The pension plan defined a union member's nonforfeitable interest as the total contributions made to the fund by his employer for his hours of labor, if either of two conditions were met; that is, the interest became nonforfeitable when the union member worked 5,000 hours within five years during which contributions were payable to the fund by his employers, or when the union member reached age 65.

If a union member died before reaching age 65, his nonforfeitable interest in the pension fund was to be distributed to his beneficiaries. If a member quit his job or left the union before reaching age 65, he could not demand immediate payment of his nonforfeitable interest; instead, the pension board had the discretion to delay payment if it thought such delay would benefit the member.

The pension plan required each union member to designate his beneficiaries in writing, and to file this writing with the trustee and with the pension board. A member could change his beneficiaries by giving written notice to the trustee and pension board. Herbert Schilling designated his wife as the beneficiary under the pension plan.

The pension plan specifically stated that it did not create any contractual obligations between an employer and a union member, and did not impair any contractual obligations between the union and the employers. The plan also provided that the interest of a member and his beneficiaries in the pension fund could not be assigned by them or seized by their creditors.

The attorney for the estate stipulated at the hearing on the People's objection that Herbert Schilling had worked 5,000 hours in five years during which his employers had contributed to the pension fund, so that his interest in the pension fund had become nonforfeitable even though he was less than 65 years of age when he died. The $16,392.69 paid to Ruth Schilling represented Herbert Schilling's nonforfeitable interest in the pension fund. After the hearing, the circuit court overruled the State's objection.

The State argues on appeal that the payment from the pension fund to the widow was a transfer of property from a decedent which ...


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