## Facts

- Orpha Allen and Herbert Allen were married for 36 years when Orpha died.
- Herbert had earned retirement benefits through a private employer pension plan and was receiving pension payments at the time of Orpha’s death.
- During Herbert’s employment, he elected a payment option providing $515.46 per month to Herbert for life.
- Under the same option, if Herbert died before Orpha, Orpha would receive $344.48 per month for life.
- The Allens selected this option instead of an alternative that would have paid a higher monthly amount but would not have continued after Herbert’s death.
- After Orpha’s death, Herbert petitioned the superior court to determine the couple’s community property for inheritance-tax purposes because California law taxed a deceased spouse’s community-property interest.
- The inheritance-tax referee concluded that Orpha’s community-property interest in Herbert’s pension “passed” to Herbert at Orpha’s death and assessed inheritance tax on that portion.
- Herbert objected, and the superior court ruled that Orpha’s community-property interest in the pension terminated at her death and excluded Herbert’s pension interest from the estate’s taxable assets.
- California State Controller Kenneth Cory appealed.

## Issues

1. Whether, for California inheritance-tax purposes, the deceased spouse’s community-property interest in the surviving spouse’s private pension continued at death as a property interest that transferred to the surviving spouse and was taxable.
2. Whether the nonemployee spouse held any taxable property interest at death when her right to receive survivor payments was contingent on outliving the employee spouse and that condition did not occur.

## Decision

- The Court of Appeal affirmed the superior court’s order.
- Orpha’s community-property interest in Herbert’s pension terminated at Orpha’s death rather than transferring to Herbert.
- Because Orpha’s death did not cause any pension interest to pass from Orpha to Herbert, Herbert’s ongoing pension payments were not included among the estate’s taxable assets for inheritance-tax purposes.

## Legal Principles

- California inheritance tax applies to property interests that transfer from the decedent at death; characterizing an interest as community property during marriage does not by itself establish a taxable transfer at death.
- A survivorship benefit payable only if the employee spouse dies first is contingent; if the nonemployee spouse dies first, that contingent right is extinguished and does not become an asset that passes at death.
- When the surviving spouse’s pension payments continue under the preexisting terms of the pension contract and are not increased or newly acquired by reason of the other spouse’s death, there is no taxable transfer from the decedent to the survivor.

## Conclusion

In *In re Estate of Allen*, the Court of Appeal held that Orpha Allen’s community-property interest in Herbert Allen’s private pension did not pass to Herbert at Orpha’s death because her interest—tied to a contingent survivor benefit that never became payable—ended when she died; therefore, no portion of Herbert’s continuing pension payments was subject to California inheritance tax as part of Orpha’s estate.


In re Estate of Allen, 166 Cal. Rptr. 653 (1980)