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                                           Au-         11. TEXAS
        PRICE  DANIEL
        ATTORNEYGENERAL   1




                                                   December   13,1949


                 Mrs, 8. El, sapp                                  Opinion No:1 VG!965
                 Director  and Executive  Secretary
                 Teacher Retirement    System of Texas             Re:   Payment of accumulated
                 Austin, Texas                                           contributions of member
                                                                         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 on the following circumstances:

                           ‘“1, A member    of the Teacher Retirement     Systam
                      designated her husband as be~neficiary to receive her
                      accumulated   deposits if death occurred before retire-
                      ment 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 a husband, am
                      I o+rrect in assuming that the money should be refunded
                      rccerding to the laws of descent and distribution of Texas?

                           ‘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 for-
                      mer designation   and now has died, having died the wifp
                      of the second husband.   Will the former designation   hold
                      or should the money be paid to the husband with whom
                      she was living at the time of her death? *

                           We assume that the designation     of the named beneficiary
                 in each instance mentioned in your request was made on the form
                 adopted by the Retirement    System, and further that the two mem-
                 bars of the Retirement   System involved herein died intestate       We
                 are of the opinion that the s-e    conclusion   is applicable to each
                                                                            .   .




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




of the two situations   and they will ba discussed   together.

           The questions presented have obviously arisen be-
cause of the insistence     on the part of interested   parties that
accumulated     contributions  paid under the Teachers’ Retire-
ment System are in the nature of insurance,         and hence the Texas
rule with respect to insurable interest on the part of benefici-
ariesin   life insurance policies 1 should be applied to the party
designated to receive paid in contributions       in the event of iha
death&&e      member prior to retirement.

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

          With reference   to contri!:utions   paid into the System
by the members     the Act    specifically   provides in Subsection
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 pol-
      icy unless he has an insurable interest in the life of the per-
      son insured.    Drane v. Jefferson Standard Life Ins. Co., 139
Tex. 101, 161 S.W,2d 1057(1942).     The insurable   interest which one
spouse has in the life of the other ceases upon divorce oKthe pu-
ties,   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 ef the ik-
surance but.also at the time of the loss, McBride v. Clayto& l&g
Ten. 71, 166 S.W.Zd 125 (19421, th e interest ef the divorce*      apeuse
named as beneficiary      terminates   upon the granting of the 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 a member     cease to be a teacher or
       auxiliary employee except by death or retirement
       under the provisions   of this Act, he shall, upon the
       filing of formal application therefor,    be paid in full
       the amount of the accumulated      contributions  standing
       to the credit of his individual account in the Teacher
       Saving Fund, and his account shall thereupon be closed,

             “(b) A member may by written designation in such
       form as the Board of Trustees          may prescribe,     provide
       that the accumulated      contributions     standing to his in-
       dividual account shall be paid in the event of the death
       of the member      before retirement,      to the beneficiary
       named in such written designation;          and if the member
        shall die before retirement,       his accumulated     contribu-
       tions shall upon application be paid to $& beneficiary
       e desimted,       if the beneficiary.    survives the member.
       The members may change the beneficiary             desipnate& to
       r+ceive his accuPaulat&       *sits       in case of de&& 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.

             “En t&e event the member        dies before retirement
       tiithout so dasignatfng.o     beneficiary   to receive his ac-
       curm@ted     cantributions,    nor in event the designated
       beneficiary   gre4eceases       the member,     his accumulabedr
       contribution~s standin      to his credit in the Teacher    SW-
       ing Fund shall be p@x4 to his &%aW. . O a*

           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 a member        upon re*
tirement.    For the reasons hereafter    discussed,   we have conclud@
that the contributions   in question are not insurance ~Md are 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 mem-
ber of the New York City khnp1oyees’ Retirement       System 'r and to.
which the estate or designated nominee of the employee were to
have the same refunded in the event of death before retirement)
contained none of the 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 re-
       ceive    this sum as the result of a transfer made to
Mrs.    B. B. Sapp, Page 4 (Opinion     V-965)


       take effect at or after decedent’s death, but, on the
       contrary, that it was insurance on the decedent’s   life,

            ‘“With this contention   we cannot agree.

              ‘“The purpose of the deductions from decedent’s
        salary and the contribution made by the City of New
        York was to build up a fund 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 appli-
        cant’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 4 percent.    Upon with-
       .drawal or death the contract to pay the annuity was can-
        celled and the consideration   returned.  The exact a-
       mount paid, plus interest, was refunded, no more and
       no less.    There is no element of insurance --in this.

             “Bad the widow upon the decedent’s   death been en-
       titled to receive the annuity payable to the employee
       upon the retirement,   there would be room for tke con-
       tention 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 of the Estate of Mary V. Fitxsimmons,     158
    ,Misc. 789, 287 N.Y.S. 171, in which it was held that tke
     amount received under a similar    statute from the Teach-
     ers’ Retirement   System was exempt from tha New York
     Estate Tax as insurance.   It does not appear that any at-.
  ’ tempt was made in that case to differentiate    between the
     amount refunded and the amount paid as a death 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 in this case.*

          To the same effect is Wilson’s  Estate v. Collector ef~ln-
ternal Revenue, 42 B.TJA. ll96 (194Q), wherein it was held that funds
contributed to the teachers’ retirement  fund by a teacher member
who d.ied before retirement,  couM not be considera& as kswance
Mrs.    B. B. Sapp, Page    5 (Opinion   V-965)




within the meaning      of the Revenue   Act of 1926.

           It is also pertinent to observe that nothing is contained
in the Act in question requiring the person designated by the
member to receive accumulated        contributions   to have an ‘insur-
able 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 re-
ceive accumulated     contributions  in the event of death of the mem-
ber have an insurable interest,     4 that the interest of a spouse
named as beneficiary      of the sum payable on the death of the other
spouse from the teachers’ retirement        fund did not terminate by
reason of a divorce ,subsequent to the designation in the absence
of a written notice to the retirement     board changing the beneficia*y.’
Wolf v. lebe, 242 Wis, 650, 9 N.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 of the member.”    Wis.
St; 1941, g 4250 (1).

3/    Subsection 6, Section 5, Art. 2922-1, V.C.S.,     as originally  en-
      acted, Acts 45th Leg., R.S.. 1937, Ch. 470, p. 1178, provided in
part:   *Should a member     die before retirement,    the account of his
accumulated ‘contributions     standing to the credit of his individual
account shall be paid as provided by the laws of descent and dis-
tribution of Texas unless he has directed the account&          be paid oth-
erwise.w     This same language was re-enacted       in the 1941 amend-
ment, Acts 47th Leg.. R.S., 1941, Ch. 376, p* 610, and is the form in
which the section stood at the time of making the designations         in-
quired about in your request.      The 51st Leg., R.S. 1949, Ch. 139, p.
244, ~-ended     said section so as to read as above quoted in this opin-
ion.

4/     See footnote   2 above.

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 1 herein.
Mrs.    B. B. Sapp, Page   6 (Opinion V-965)



           Having concluded that the accuntulated       contributions
are not insurance, we turn now to the question of whether a di-
vorce amounts to a revocation       of the designation   oftthe party tm
~ce4ve    such accumulated     contributions   in the 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 a husband bequeathed a portion of his estate to his
eeuse.     Later the parties were divorced,       and the husband rernar-
ried without changing his will.      The court held that there was no
revocation    of the bequest to the former wife by reason of the di-
verce, observing that:

            “We do not find in this record any sound basis
       for helding a revocation of the will ‘by iinplication.’

             ‘“In Morgan v. Davenport,  68 Tex. 230, at page
       2,37, our Supreme Court said: “We therefore hold that
       under the statutes of this state there can be no su,ch
       thing as the revocation of a valid written will, unless
       the same be revoked in one of the manners prercribed
       by the statute.’

             “The case before us presents   a typical illustrr-
       tion of the 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 57 Anx. 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 of the
d,ivprce and the death of the test,ator, the letter having ample lle-
pertunity to change his will during that tinae. ~ D 0mis equaIly prp-
pfic&le   te the facts before us. In one instance, under the facts
 submitted, the member     of the Teachers’ jlystem had two years
after the granting of the divorce in which to change the a’esigna-
tien of the party to receive her accuroulated contributions,     and
failed to do so. No facts are presented in either instance reflect-
ing that the member was in any way prevented from making suck
change had it been so desired..

          One further question,remains.      It relates to the fact i9prt
the teacher member,     at the time of making 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 of the word “husband”
used in the designation   is merely descriptive,     and that the person
lstually 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,    130 Fla.   1177,
138 So, 778 (1932).    In this 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 e will and devises property to him by name
       and identifies him as her husband, he does not take
       ‘es the husband’ but he takes as a named beneficiary
       end the word ‘husband’ is merely descriptio   personae.’

          In each of the two instances presented the teacher mem-
ber had executed and filed with the Retirement      System a designa-
tion of beneficiary  to receive accumulated    contributions   in the
Teacher Saving Fund of the System in the event of death before re-
tirement.   .This w&s done on the foFm prescribed      by the System
which specifically  provides that should the member decide to have
his or her accumulated     contributions paid to someone other than
the party, or person named, such change will be made in writing
on a form 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 of the contributions        es they sew fit.
See concurring opinion of Justice Garwood in Woods v. Reilly, supra.
For reesons known only to such deceased members           they did not see
fit to make such changes.

          Accordingly  you are advised that the accumulated    contribu-
tions of the two System members     should be paid to the parties named
end designated as beneficiaries.                                      ._



                              SUMMARY


             A husband or wife of a member     of the Teachers’
       Retirement   System, designated by name as,beneficiary
       of the member’s    accumulations   in the retirement   fund
       in the event of the death of such member      prior to re-
       tirement,  is not deprived of the right to such accumula-
       tions, by reeson of divorce subsequent to such designa-
       tion. The accumulated     payments provided for in Art.
       2922-1, V.C.S.,  are not in the nature of insurance.     The
       Texas law dbes not require that the beneficiary      have en
Mrs.    B. B. Sapp, Page   8 (Opinion V-965)




       insurable interest in the life of the tescher. Bene-
       ficiaries may be changed upon divorce by written no-
       tice es provided by law.

                                           Yours   very   truly,

                                    ATTORNEYGENERALOF              TEXAS




                                           Exeautive   Assistant


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