Untitled Texas Attorney General Opinion ( 1945 )

‘,
IYS
OFFICE OF THE A~ORNEY CWNERAL OF TEXAS
AUSTIN
gonon @8oPga a. aheppard
Corrptrol1.l. of ?ublio Aooountr
lrtutln 11, TOxaB
mr air1 opinion lo. o-6641
Ret Inolu8ion for lnherltarroe tax
nquert I8 oocarIot¶ed by 8 oontrovo
the attortter for the fnto1v.d orkt
thereto 8 latter Troll the 8tt
latter inn Jolw rupre8entatl
la ent
88to.
th efa c t*. o n7 0
fo r th ebatefit 0
th o nlnth 8 p r tvl
b enefIo I8r tqler
th a otfo th o n.
indup 8ttd di8-
h pM'ti.8). di8-
dlmoted that
ould ulnd up and dirtrihuts
On April 15, 1929, the de-
t arationed and inrtructed
fir8t and b8t” distribution to hIa five
th811- entln Interest In the trust. Such
led out, and the~reafter the vlfs remained
of the tX'U8t. -The decedent died on Decem-
the property plaoed in the tN8t Ya8 at
for oommunIt~ pnportJ.
line dlsagmomnt as to the inOlu8iOn for inheritance
tax purpose in decedent@o gross ertate of the fund8 remaining
in the truot arlroa under Article 7117, V. A. C. 3., the pertl-
nent part of vhlch is quotedr
. ~1!30
moreble Oeorge H. Sheppard, page 2
"All p.FOpOetJ Within the ju?i8diotiott Of thI8
-btate,
ml or penon , oorporste or lnoorporate,
'~ ili&'~kfintik'tt~t thO?dil, ittOlUdillg p?OpO?t~ p8-
-“sitt& UTtdU l ~ tte?aPlOW?OflppOtibUlt UUOi8ed
by the dewdent br ~111, inoluding the p?OOUd8 of
life in8Ulmae'tO the Utent Of th. -0Ultt lWOeiV8-
ble br thoiexeoutor o r lhlnlstrator a8 ln8uxwioo
@or pOliOiO8'~ taken out by the dooedont won hi8
ovn life, and ‘to the lxteat of tbo uoe8s over Fort.7
mousukd b13AF8 (~~0,000) Of th. -t noel~ble
br ail OthW knefiOude8 a8 itM?UtOe UDdO? PO&
01.8 taken out by the decedent upon hI8 own life,
vhother belwias t0 -8ihnt8 Of thi8 Stat0 Or
to penons who are not Inhabitits, regmdl.88 of
vhether 8uOh property I8 lowted rlthia Or rithout
this Mate, wbloh 8h11 #88 lbrOlUuk1Y Or in tNSt
.br Win OP-bJ th. hV8 03 d.80~TV Or ai8t+Ation
of this or ear othor Mate, or by deed. gtwnt. rale,
or gift rdo or intended to V
81oII O?lnjOWnt after the duth Of th@ MtOl' Or
a-O?, 8bii, UpOa p888uIg LO O? rO? th0 \UO Of w
p O?SO&OO~O~tiOn, 0,
l88OOirtiO& b8 8UbhOt t0
b tu for the 89ttesit 0f th8 8kteG h0-i ~k~enue
p Ull&
in
lO,
O~?d&
lfith ttO O
the fOl.lOVing OlB88ifiCt&-
. . . . (hpb818 UidOd)
?h 0lttO?tiO7 fO? th0 08-k OOtthtd8 uUt iIt O?dO? iO?
8' ttWtSrO? to 0~8titUtO 0110mad. or latondod to take Offoot In
pOSSe8SiOZi or enjoyment after the death of tbo grultor or donor,
vlthin the m8nIa# OS the above-quoted Artlole, it 18 neoessar7
tbat on. ,of the folloving oondItIons must obklnt ‘(1) The
@Unto? Or 8OttlOr m8t hVe nsenod 8a inOolP0 fraP the traas-
ferred property for his or her life so that the tXUtI8fer Is not
complete until donor’s dsathj or (2j The rights of the benefi-
ciaries must be oontlngent uponstheir surviving the &a&or or
settlor of the trust, ln vhlch case It Is the death OS the grantor
or settler vhlch fixes the rights to take or rucoeed to the trust
estate.’ Further, the attorner argue-t the mere fact that VI-
der the terms of the trust the trustee oannot be required to dls-
tribute to a beneficiary all, or part, of the trust corpus until
a date subsequent to donor’s death vhere the rights of the bene-
ficiary are fixed and definite” does not operate to oonvert a
transfer to a trustee othervise completed In all respects prior
to dOnOr'8 death into one made or intended to take effect after
the death .of the donor.
gonomble Oeorge 11. Sheppard, page 3
1
Ott the other band, the repnsentatlve of the Comptroller’s
prpmtmnt contend8 that the f8ot that the vlfe’r rights had be-
owe fixed and definite I8 not the d8018Iv8 qUe8tIOn but that the
fact that pe88O88Im and l njOm8nt VOl’e vlthhald Utltil the hus-
b8ud’s death or that th8 husbrupd’8 death va8 the event vhloh gave
the Vii8 ~8SO88itX Uld -jOJneZbt rhould ~OvOm.
It ha8 ken noted that In,8upport of his pro~orltlon
tbrt the right8 of the vii0 becae rmd
end deflnlto nth droe-
dent’s exerclee of th8 above-mentioned privilege, the attorney
oltes the as88 of I. P. Bumey t8. ConI8slon*r of Internal Rev-
enue (4 t. C. 449). & thi8 ?8gUd, It MT g?UttOd th8t
hr?@ 88
th8 tN8t in Question Va8 Irrerooeble. Although tbI8
18 a mate-
rlA1 oon8lderatUm under the Fedeml x8tate Tax frv (Tit10 26,
II. 5. C. A., 36 811 (d)), it 18 not lmportut in d8termlnky
the l pplIaabIlIt~ of the %x&r 8bhIt8 (808 ini’m).
Fhe lwdlag
judloial lnterpnt8tIon of the above-quoted
Statute lS
it 8ppiIOS t0 the fact8 in ttl. i.MtUlt -88 VO8 b
the Court of CIvIl Appeals of Austin in Bethea t8. ISheppard t 143
S. Y. (26) 997~-ernr refued) . FrCn thi8 OpfniOtt th 0lttOITLOJ
has quoted, but not fully. In thla aas8 the Court, dnvlng from
the deolslons of other 8tatos, prescriber a test for taxability
under the 8trtUt*, dOtin88 “pO88O88iO11 Of l
ZhnjO~llt", 8tit88 th8
dlstlnctloa betveen the Federal tstate tsr kv and the Texas Rat-
ute, and treats specifically vlth an Irrevocable trust. Contrary
to the lttomey’r 0aMentIon that tbls oa8e I8 Inapp~Ioable here,
the foll~ving a of the Court I8 demed partloularl7 pertl-
nentt
‘And In R. blhttder'8 z8trt0, 123 1.J. 7.&2,
195 A. 805, 808, the oourt rtate8 generrllyt
test of taxablllt~ 1s not the time of the ccaplete
divesting of the transferor’s interest or ovnershlp;
it is the the of the complete succession by the
transferee. Where there is -a transfer of a speoiflc
interest In property and the succession of the tmns-
feree does not become, and under the tenas of the
tmnsfer is not to become, cunplete until a time at
or after the death of the tmnsferor, that transfer
Is taxable. “The distinction l l l rests on l l l
whether the done8 Is deprived OF an Interest of 8-e
kind l l l until the donor'8 death.“’
Bonorable Oeorge II. Sheppard, page 4
“see, also, ?eople v. Hoses, 363 Ill. 423, 2
I.E. 24 724; In m toy’s Estate, 220 Iova 825, 263
1.U. 5Oli and Xi~ball v. rotter, 89 1.E. 234, 196
A. 272, 274, vherein the oourt rtates that 'the DOS-
8888iOtt O? ltt~OYEOnt, Vithin the 8t8ttttOrt IOaniqg,
18 8UOh lS 18 lOtUa1 and l'U1. urd not 8UOh (L8 iS
?iheontIoal or defemd.r d that th tax was to
ho assessed on the value OFthe prop& at the
death of the dooedent.
"Me do not regard a8 neoe8ur~ a 1engthJ dlr-
owslon of the dirtinotion recognir8d by the authorl-
ties betveen the Seders1 estate tax and the Inherl-
tame or sucoesslon tax levied by the various states.
~Suffloe It to ur that the fedenl ertate tax Is im-
.~ pored upon the right of grantor of tnnsferror to
tranrfor property, and that the Inherltuoe or suo- ..
oesslon tax by th8 state is impaled upon the right
to noelve or rucoeed to tho pO88888ia or enjoyment' " -:
of property. HO? 18 it lWO8888~ t0 dbOU88 the OO&
fllct of luthoritier vlth respect to the distinction
as to these tvo foms of taxe8. und8r the Fedora1
Estate Tax IAV, the primary question to detemlne is
vhen the decedent or gmntor parted vlth all property
rights. Under our State Inherltutce or Sucoesslon
Tax Statute, the priasry question 18 yhether the
transfer vas mado or Intended to take effeot in po8-
session o r l njoment after th8 death of grantor or
settlor, particularly in ca8es of transf8r of prop-
erty in trout. It 18 not a quertlon of vhen the
heneflclal interest 1s created. but tb8 tax Is fm-
posed upon the rkht to receive in Dossesslon O’Iw
joyment after the death of -xrantor or settler.
consequence, a grantor or settlor may create an Ir-
revocable trust durinn his lifetime. rtlll if he
pO8tDOneS the ritit of DonS8SSion or 8n~Osault of
-the beneflclarr y$&ll after UU&O~‘s death. the
joyment’ Is made contingent upon the death of grantor
or settlor of all or any part of the trust estate,
such transfer is taxable. . . ~.” (lhnphas1s added)
It 1s not deemed necessary to elaborate on the appllca-
bllity of the above-quoted portion of the Court’s opinion to the
facts in the present case. It may be here noted, hovever, that
..
133
&,oorable George 8. Sheppard, page 5
8, the terns Of the tntrt the tramfor va8 one %ade or latexxled
to ta&e rffeot la possession or enjoyment* at the election of the
#8ttlor. Of the tvo 8lteraatIver rrallable to hti, either (1) of
~qulrlng the trust to be dfrtrlbvted In vhole or in part vhlle
living Or (2) Of $08tpOIhiry it8 dirtribution Until lftu hi8 death,
the decedent chose the latter. Hi8 death Va8 the avant vhloh @ye
tie vlfe the “aotwl uad real” porr4rrlon or lnjomnt rufflclent
to brlag the property vlthln the moope of Artielo 7117, V. A, C. 8.
Aooordingl~, rou are adYI88d that it 18 the opinion of
thi8 0rfi00 that 0ru-haof the yalue of the trwt a8 of the date
ef the death of the deoedoat 18 able under tin Iaharltutoe Tax
Z&V8 Of wXa8.
Tours very truly
ATTORBXY a OF TXA3