Untitled Texas Attorney General Opinion ( 1964 )

THEAT-~RNEYGENERAL
OF-TEXAS
Honorable Robert S. Calvert Opinion No, c-204
Comptroller of Public Accounts
Capitol Station Re: Taxability for inheri-
Austin, Texas tance tax purposes of
trust accounts which
under New York law are
described as Totten
Dear Mr. Calvertr Trusts.
We quote the following excerpt from your letter request-
ing the opinion of this office on the above captioned matter.
"Emil Andrew Edwards died testate a resi-
dent of Brazos County, Texas, on January 29,
1962, and the proper report has been made to
this ,Departmentas required by the law.
"Schedule B-l of the inheritance tax
report discloses the following informationr
"'Three separate trusts were established
as of April, 1958, by deposits of $10,000 in
each of the three accounts listed below. Each
account was In the name of Emil A. Edwards in
trust for Teresa Vivian Graham, a niece. The
motive was love and affection for one who had
lived with him for 21 years. The donor was
judged mentally incompetent on May 15, 1961,
and remained so until his death thus losing
all power to revoke the trusts.
"'The accourits had balances as of Janu-
ary 29, 1962 as~follows:
Emigrant Industrial Savings Bank of
New York - io,379.92
Dime Savings Bank, Brooklyn, New York - 10,379.92
Seamans Bank for Savings, New York
--I
"We,understand that the above accounts
under the laws of New York are described as
Totten Trusts.
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Honorable Robert S. Calvert, Page 2 (Opinion No. C-204 )
"The attorney for the estate ., .~.~feeJs
that by reason of incompetency,~tMe grantor
lost powerto revoke; and for this.reason;
the value of.~theseaccounts Is no;part of
the taxable estate."
Prior to the decision by the New York Court of Appeals
in the famous case of Matter of Totten, 179 N.Y. 112, 125,
71 N.E. 748 (1904), the law with respect to the effect of a
deposit in a savings bank in the name of the depositor "in trust"
for another had gone throu h a considerable evolution. See
1 Scott on Trusts (2nd Ed.7 481, 482, Sec. 58.2 and particularly
see the decision in Beaver v. Beaver, 117 N.Y. 421, 22 N.E. 940
(18891, 137 N.Y. 59, 32 N.E. 998 t1893), in which the court was
assuming that either an irrevocable trust or no trust at all was
created. The Totten case recognized that there was a third
possibility, namely a revocable trust, and that in the absence of
evidence that an irrevocable trust was intended or that no trust
at all was Intended, the inference arising from the form of the
deposit was that the depositor intended to create a trust reserv-
ing a power during his lifetime to deal with the deposit as he
saw fit.
A long line of authorities is cited in 1 Scott on Trusts
(2nd Ed.) 494, Sec. 58.4, in which the New York courts have held
that where the depositor of a Totten trust becomes insane, his
guardian or committee cannot revoke the trust unless he can show
that the use of the deposit was necessary for the welfare of
the depositor. Thus, the courts consider the trusts as arising
immediately and not merely on the death of the depositor. The
foregoing authorities support the conclusion that the value of
the trust accounts were no part of the decedent's testamentary
estate. However, whether said accounts were part of the dece-
dent's taxable estate presents a different question.
Article 14.01, Chapter 14, Title 122A, 20A, ,Vernon's
Annotated Texas Statutes, expressly taxes s,uccesslonsto prop-
erty other than that owned by the decedent at the time of his
death. The tax to such successions includes (1) property pass-
ing under a general power of appointment exercised by the dece-.
dent by will; (2) certain life insurance proceeds;,(3) transfers
made or intended to take effect in possessionor enjoyment after
death of grantor or donori and (4) transfers incontemplation of
death. The validity of succession taxes upon transfers of this
nature 'iswell settled. The latest expression of the Supreme
Court recognizing the imposition of inherit,ancetaxes upon such
types of transfers is Calvert v. Fort Worth National Bank, 163
Tex. 405, 356 S.W.2d 918 (19b2).
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Honorable Robert S. Calvert, Page 3 (Opinion No, C-204 ,)
The leading case in Texas dealing with transfers made
or intended to take effect in possession or enjoyment after the
death of the grantor or donor is succinotly summarized at page
922 of the opinion in the Fort Worth National Bank case,
"In Bethea v. Sheppard, Tex.Civ.App.,
143 S.W.2d 997 (wr. ref.); Henry Henke and
his wife, Catherine Henke, executed a joint
will and trust agreement which provided that
the entire community estate sho~uldpass to
a named trustee in the event the husband
died first. Mrs. Henke and a daughter were
to receive specified annual payments from
the trust during the lifetime of the former,
and the payments to the daughter were to be
increased and continued for eight years after
Mrs. Henke's death. At the end'of such
period the corpus of the trust was to be
distributed to the daughter if living; but
if the daughter was not living at that time,
the property was to be held in trust for an
additional five years and then delivered to
the daughter's children. The husband died
first, and inheritance tax was paid only
on his half of the community estate. Upon
the subsequent death of Mrs. Henke it was
held that the right of the daughter to
succeed to her mother's community inter-
est,was taxable as a transfer by Mrs. Henke
made or intended to take effect in posses-
sion or enjoyment after death."
In the Bethea case, the interest of the daughter in the
trust corpus wamingent u on (1) her surviving both the
mother and the father, and (2P that she survive the mother for
a period of eight years. In the case presently under consi-
deration, the beneficiary's interest In the Totten trusts were
contingent 'upon (1) the depositor's failure to revoke during
the period such bank trust accounts were subject to revocation,
and (2) that she survive him. This she did; and therefore at
his death, the deposits In these trust accounts ripened into
full possession and enjoyment and are subject to inheritance
taxes under the provisions of,the statute.
SUMMARY
Funds deposited in 'Totten trusts" under the laws
i.nhcr3~tanoe',
of;;New,York are subject 4o 'l'e%as' taxe::
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Honorable Robert S. Calvert, Page 4 (Opinion No. C-204 )
upon the death of the donor, a Texas resident,
despite the fact that the donor had lost the
power of revocation by reason of insanity prior
to his death.
Yours very truly,
WAGGONER CARR
Attorney General of Texas
BY
APPROVED:
OPINION COMMITTEE,
W. V. Geppert, Chairman
W. E. Allen
James .Strock
V. F. Taylor
Kerns Taylor
APPROVED FOR THE ATTORNEY GENERAL
By: Stanton Stone
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