Untitled Texas Attorney General Opinion ( 1962 )

- .
THE ATTORNEY GENERAL
Honorable Robert S. Calvert Opinion No. WI&1348
Comptroller of Public Aoeounta
Capitol Station Rel Taxability for inheritance
Auetln, Texas tax purposes of eurvIvor~0
interest in eavings account
held by survivor and a de-
cedent a8 joint tenants
Deer Mr. Calvert : with right of aurvlvorehlp.
Ho quote the following excerpt from your letter requesting
an opinion of this office on the above captioned matter:
“The final inheritance tax report
for the Estate of Nellie Cloyd, deceased,
Dallas County, Texas+ 3.0 now before this
department for final disposition, and
while making our usual lnvestigatlon of
the return, we find the decedent had a
joint savings account with the right of
survivorship with the Republic National
Bank of Dallas standing In the name of
the decedent and Varina McKinney, and
to’which account Varlns McKinney had
deposited $479.25; balance o? the ac-
count at date of death was $5,027.66.
“This department has included this
account for inheritance tax purpooee,
less the amount deposited by Varino
McKlnney, . y .
“Since this account still remained
In the bank upon the date of death of
Nellie Cloy&, Varlna McKlnney did not
come into possession and enjoyment of
this account until death. Therefore,
under the provisions of Article 7117,
this account is lneludfble for lnheri-
tance tax purposes.”
You state that the attorney for the estate has objected to
the action of your department in including the account for lnhori-
tance tax purposesp and you have attached to your letter request-
;n&he opinion of this offfoe a Ietter setting forth his objoc-..
.
Honorable Robert S. Calvert, Page 2 oRlnloaWo. WV-1348
.
The attorney’s position may be surmaarieed as follows.
Attorney Cieneral I8 Opinion No. O-2850 held that where a deoedent
had placed funds In a bank aocount In the name of the deoedoht
or her daughter, upon which eltheP could draw oheokkr, that on’..
the decedent’s death, the amount remaining In the bank acoount
passed to the daughter in possession and enjoyment a8 a gift porn
the mother, Intended to take effect after the mother’e death.
Thereiore, the opinion held said amount to be eub)ot to lnhorl-
tance taxes. In the course of the opinion, the writer stated
that he was unable to find where any joint tenancy use created,
and that the daughter had received no vested interest In the
money at the time the decedent had deposited if.
Our attention is directed to the recent Supreme Court deal-
-X.
EKepar-
ate funds by a single man and Issued in his name, and subsequently,
after his marriages the certificate wae changed to read “L. L.
Davle or Mre. L, L. Davis”, and at the same time a signature card
~81) signed by Mr. and Mrs. Davis , whioh stated that the oertlflaate
was held by them as joint tenants with right of survivorship, upon
Davis’ death, Mrs, Davis beaame the sole owner of the $~,OOO.OO.
It is a eolfloally oalled to out lttantlon that the oourt
orid at page t;318’
II When the oontraot was made
by L.‘LI iavle wlth East TeXasa I&e. Davlr
was thereby vested with a prellentp though
defeaaible, interest in the deposit. Her
interest would have been defeated If the
certificate had been ohanged by Davis or
the deposit had been withdrawn before his
death, or if Mrs. Davis had predeoeased
her husband. Rut, when Davis died without
the interest of Mrs. Davis havl been
defeated, she became the owner “041 the
full title to the depolrft 1 D O .‘I
1 Artlole 7117, VernonCe Civil Statutes, PPeeently oarried as
Art. 14.01, 20A, Tax,-(lien., V.C,S., provides, in part, an follouag
"All property wlthin the juPlsdictlon of this
State,. o .whloh shall paaa. D .by deed, grant,
sale or gift made 01”intended to take effect in
possession or enjoyment after the death of the
grantor or donor, shall, upon passing. . .be
rrubjeot to a tax. e q‘I
Honorable Robert S. Calvert, Page 3 Opinion No. W-1348
i The attorney for the estate takes the position that since
Oplnlon No, O-289 did not find the existence of a joint tenancy
or a verted.lnterest, Its result should not be reached in the
instaxit ease. .We disagree.
At,page 931 of the opinion in the Davis case the court said:
“Upon the death OS L. L. Davis, Mrs.
Davis became the owner of the $6000 on
deposit with East Texas a8 her, separate
property. The contract madeby Davla
with Rast Texas was a valid and enforce-
able aontract for the benef.lt of a third
party, Edds v. Mitchell 143 Tex. 307,:.
184 S.Y.2d 823, ,828, 14 A.L.R. 470. In
that case we held that Unlted States Sav-
ings Bonds purchased by Mrs. Rhode and made
payable to herself and on her death to
Mm. Zdds, were, on the death of Mrs. Rhode,
the property of Mrs. &ids. Our concluelon
was predicated on a holding that the oon-
traot made by Mrs. Rhode with the United
States Qoverment was for the benefit of
Mrs. Edds and that when the bonds were
purchased Mrs. Edds acquired a present
vested though defeasible interest ln the
bonds which ripened into full and abao-
lute title upon Mrs. Rhode’s death. That
case and this case are not to be di,stln-
gulehed because the former Involved bonds
and this lnvolvus a savings and loan cer-
tlf lcate . ”
The contract made by the Decedent In the case this office
is now considering wa8 a2valld and enforceable contract for the
benefft of a third party 0 The Edds
__ case cannot be distinguished
2 In Adam8v. Jones, 258 S.W.2d 401 (Clv.App. 19!33), the court
said at page 403 :
‘The grounds u on which courts have sustained
.. such agreements P joint tenancies with rights of
survlvorshlp~ have varied. Some courts have Fe-
lied upon the law o? gifts, others upon the law
of contracts and trusts. See 7 Am.;Jur., Sets. 426-
436, 9 C,J.S,, Banks and Banking II 286, p. 595, and
the very able opinion in Reach v. Holland, 172 OP.
396, 142 P.2d 990, 149 A.L,R, 866, Annotations same
volume, p0 879.
(Continue)
Hononablo Robert 8. Calvert, Page 4 Opinloa No. HH-1348
from thlr 08~ beaawe It Involved bonds and this case Involves a
locount,
joint o a vullg r The Davis ca8e csnnot be distinguished
from this case boceuee It In-Q a 6avln&# and loan certlflcate
and this case @?o%ves a joint bank . account.
_ At the ._- the ac-
. . tlae -
count was openea, the mrvlvo~ acqulrea a vesteao tnougn 06reaal-
ble Intorest, In the account which rUened Into full and absolute
title upon the Deoedent’s death. Death was the taxable event; and
at thlo time, the Inheritance tax was levied upan the plcedent’s
Interest In the Jo%& account.
In Attorney i3enera11s Opinion No. O-2589, written In 1940,
thie of?ice held that where a joint tenamP had been created In
crrtain stock upon the death of the joint tenukt who had caused
the creation thereof’, there w&s a taxab3.e .transfer for inheritance
tax purposes d hls one-half Interest to the survlvlng joint ten-
ant under the provlaion of what was then Art1010 7117, taxing
trans?ers by “gift made or intended to take effeot in possessi~on’
or an,jcyment after the death of the. , .donor”. Evon prlor to
the date of this opinion, you have Informed us that it had been
the consistent departmental construction for many years that such
tramfers ware taxable. It is well settled that great weight
shwld be g&van to departmental eonstructlons of long standing,
a& such oonrtrwtto?k~ will not be departed from unless clearly
lmo neo u6o 39 Tex..Sur. 235, Statutes, Sec. 126. Moreover, the
J,,s@slature has met many times sl~ee the departmental construe*
tlon wae plrced on t&i statutory psorlslon In question; and the
4 &q&lslature is presumed to have aafiulesced In such construction.
IsbeLl v. Oulf Unlon 013. Co., 127 Tex. 6, 209 S,W.2d 762 (1948).
3Two important ‘Texas oases o the B6ithea ca& and the Cahn
ca88, have dealt with the taxabllltyd2-2FoLnsfers by deedTaM,
sale 00 gift made or intended to take effect in posse.esion or
enjoment after death D
t
2 (Cont’d) “We will not indulge iA a prolonged discussion
of the academic. The agreament having validity
must be enforced 1,rrespeotive of the reasons sus-
taining It 0”
If we be in error in our decision that joint bank ocoountr
with rights of survlvorshlp would be sustained in this State u$on
the law of contracts, it could make no difference in the tax re-
sult since regardless of whether such agreements are enforced under
a legal theory of the law of contracts , or the law of trusts, or
the law of gifts, the tranafer remains one intended to take effect
after doa+& and Is thereeiore taxable.
3 Bsthea v, She a .d 143 S W Pd 997 (CiV AP
V. fp$g
Qalve,.~,,
1 Tex. *&&, Sl 3, W.&i
.
Honorable Robert S. Calvert, Page 5 Opinion ‘No. WW-1348
In the Bethea .case, Henry Henke and his wlfe executed a
joint will an-t agreement which provided that the entire
community estate should pass Into a trust in the event the hus-
band died first. Mrs. Henke and her daughter were to receive
specified annual payment8 from the trust during Mrs. Her&e’s
lifetime, and the payments to the daughter were to be increased
and continued for eight years after the mother!:e; death, At
the end of euch period, the corpus of the trust was to be dls-
trlbuted to the daughter, If she was then living, If not, at
that time the property was to be held in trust for an additel
five year8 and then delivered to the daughter’s children.
husband died flr8t and an inheritance tax was paid on his one-
half of the community eatate. Upon the subsequent death of Mrs.
Henke, It was held In the Bethea case that the right of the
daughter to succeed to the-r’s community Interest was taxa-
ble a8 a transfer by Mrs. Henke made or intended to take effect
in possession or enjoyment after death.
We quote the following excerpt from page 1001 of the Bethea
case :
n And thus the trust Instrument
by lb’ok terms brings the instant case
squarely within the statute, which does
‘( not impose the tax on the transfer Of
the property, nor on the passing of the
property from the grantor, nor on the
right to become beneflclally interested
in the property, but imposes the tax
upon the passing of the property or
Interest therein when ‘made or intended
to take effect in poaseeslon or enjoy-
. ment after the death of the grantor’ . . . .”
In line with this reasoning, we conclude that the fact that
the surviving joint tenant became beneficially interested in the
property in question prior to the death of the decedent makes no
difference a8 to the question of taxability; rather, the lnherl-
tance tax became due upon the receipt by the surviving joint ten-
ant of the Decedent’s interest In said property.
We quote further from pages 1002 and 1003 of ‘the Bethea
cat40:
I, Under the Fedeiral .EstBtk .Tax
Law, ’&‘prlmary question to determine
is when the decedent or grantor parted
with all property rights. Under our
State.Inheritance or Succession Tax
Statute, the primary question is whether
‘:.!
Honorable Robert 8. Calvert, Page 6 Opinion No. W-1348
the transfer was madeor Intended to
take effect 5n poswesion or 0nJoyiuent
after the death of grantor or settler,
particularly In caee6 of transfer of
property in truat. It is not a quee-
tlon of when the beneficial intereat
la created, but the tax 18 imposed
upon the right to receive 5n poesesalon
or.enjoyment after the decrth of grantor
or settlor q In consequence, a grmtor
or aettlor may oreate an lrrevooable
trueti during his llfetlme, still If he
postpones the right of posreaslon or
enjoyment of the beneficiary until
after grantor’s death, the property
or any Interest therein 1s subject
to the Inheritance or succes6ion tax
at or after his death. Under our
statute, where either lpoeeeeeIont or
‘OnJoyment’ la made contingent upon
the death of grantor or eettlor of
all or any part of the trurt ertate,
‘I’ such transfer 10 taxable. . . .”
.
Thus agaln,‘the court made It clear that the primary guea-
tlon under our lnherltanoe tax statutes Is not Whenthe decedent
parted with property rights, but rather lo -her the transfer
.. was made or intended to take effect In poBsesrlon or enjoyment
after the death of the grantor or eettlor. The aourt rtated
that If the poasesslon or enjoyment of the propert or any inter-
est therein Is postponed to the beneflclary until L frantor’a
death, the property Is subject to an Mheritanoo tax a his death.
In the Cohn case, at page 872, the SupremeCourt
again expressrylpapprove oldlng of the Bethea case.
on May 9, 1962 t
in Robert 8. Calvert, Co
Independent Executor
pamea upon by the c&w
ficlary of a will 81) a result of the election of the owner of
euch property to accept under the.wlll ~1~ to be regarded as
having passed by the will for the purpose of computing the lnherl-
tance taxea Imposed by Article 7117, Tex. Rev. Civ. Stat. 1925,
an amended, Acts 1945, 49th Leg., p. 148, ch. 98. The last cited
statute was repealed in 1959, but It8 provlalons in oubetantlally
the came language were reenacted as Article 14.01, V.A.T.S., Tax.-
Oen. The court held that the property received by the beneficiary
of the will as a result of the election of the ouner did not paw
by will wlthln the meaning.of Artlole 14.01.
..
. .
liotiorabli, Robert S. Calvert, Page 7 Opinion No. WW-1348
We quote the following excerpt from page 363 of the oplhion:
II. . . as pointed out in Magnolia
Petroleum Companyv. Walker, 125 Tex.
430, 83 S.W.2d 929, it Is proper to
consider the history of the subject
matter ‘In arriving at the purpose and
intent of the law.
“Hlatorlcally, death dutlea ‘In all
countrlee rest in the eeeence upon the
principle that death Is the generating
source from which the particular taxing
power takes Its being, and **+ It iB
the power to transmit, or the. tranemie-
alon from the dead to the living, on
which euch taxee are more immediately
rested.’ See Knowlton v. Moore, 178
U.S. 41, 20 S. Ct. 747, 44 L.Bd. 969.
From a reading of our lnherltanoe tax
statutes, we think the basic planand
purpose of the Legldlature wae to levy
the tax upon the privilege of aucceedlng
to proportp belonging to a decedeht at
the tlme of his death. . . .‘I
We thlnk our holding on this question 10 caneietent with
the basic plan and purpose of the LegiBl8ture to levy a tax upon
the privilege of succeeding to property belonging to a deoedent,
beoauare It La not until. the death of the joint tenant that the
eurvlvlng joint tenant aucceede to the property.
However, we are of the opinlon,..ln friew of the presumption
that the bharee or lntetiesta of joint tenant0 are equal, Attor-
ney Qeneralle Opinion NO. o-2589, suptia, and in view of the con-
tract crea$lng the joint tenancy, that at the time of It8 crea-
tion, each co-tenant became vested, subject to defeaeance, with
a one-half Intereat ln the bank account; and that therefore only
one-half of sold account paered to the eurvlvor at the Decedent’8
death. The Inheritance taxes should be computed accordingly.
$UHHARY
i
The decedent ‘8 one-half interest in: ,A..
bank 8CCOud whfch the decedent and another
held as joint tenants with right of survlvor-
ship 1s eubject to an Inheritance tax when
. . .
Honorable Robert S, Calvert, Page 8 Opinion No. Wit-1348
received by the survivor at the deoedent’e
death.
Youre~..very truly,
\cILLWILSON
Attorney General of Texas
A8018tMt
MlrlCOP/jP
APPROVED:
0pINmN cOMMIw!Es~
w. V. Oeppel?t, Chairman
Arthur Sandlln
Robert Scofield
fpgr p;
. .
RBVINNND
FOR ,!PREATlQRXEyGENERAL
By: Houghton Brownlee, Jr.