Untitled Texas Attorney General Opinion

Honorable Robert S. Calvert Opinion No. W-630
Comptrol~lerof Public Accounts
Capitol Station Re: Whether corpus of trust
Austin, Texas consisting of intangible
property.held in Louisi-
ana by Louisiana trustee
is subject to Texas in-
Dear Mr. Calvert: heritance tax'
.~Inconnection .with.y-ourrequestfor an 'opinionon the
"'above captioned matter you have~supplied us with the following
facts. Ida Mitchell Looney, hereafter referred to as Decedent,
was a resident of Dallas County, Texas, both at the time of her
death and~at the time she executed an irrevocable trust agree-
ment with Tulane 'University.'.Pursuant to.the agreement, .'
certain stocks and a check for $3000 were turned over to Tulane~
University which was to pay the income to the Decedent during
her lifetime~and upon the Decedent's death, to .distribute said
income to her cousin for life. Upon the death of the Decedent's
cousin,.TLilaneagreed to use such income for the support of the
Thomas GreenProfessorship~of Education.
The agreement is clearly a taxable transfer under that
portion of particle '7117,Vernon's Civil Statutes, which imposes
a tax upon transfers made '. . .by deed, grant, sale or gift
made or intended to take effect in pos;ession or enjoyment after
the death of the grantor or donor. if the property is
"within the jurisdiction of this State... ."'.for inheritance tax
-purposes The attorneys for the estate submit that since the
property ,whichpassed at Decedent's death by virtue of the trust
Instrument was intangible personal property which had acquired
a fixed business situs in Louisiana, it is not within the jur-
isdiction of this State for inheritance tax purposes.
In the fclloiringcases the Supreme Court of the United
States limited the right to tax intangibles (reserving the ques-
tion of a decision in the.event such intangibles had acquired a
business situs) to the decedent's domiciliars state. Farmer's
Loan and Trust-Co. v. Minnesota, 2% U.S. 2014 (193G); Baldwin v.
Missouri, 26i U.S. 503 1330 ; BeAdler v. South Carolina Tax
Commission, 282.U.S. 1' 193d ; First National Ban;307 U.S. 357; Gravesv. Elliott,
307 U.S. 383.
In the Curry case, ~the decedent had reserved the
right to dispose of all the trust property by will, and by
will did make a disposition of it whichediffered from that
provided
_ _. in the trust instrument. In the Graves case,,the
decedent's death extinguished a power of revocation which she
had reserved in the trust.
In Russell v. Cogswell, 98 P.2d 179 (Kan.Sup., 19&O),
the Kansas Supreme Court took the view that the power of dais-
position reserved in the Curry case and the power of revocation
reserved~in the Graves case were the equivalent of .ownership
and pkoperly 'identifiedwith the decedent's domicile. Since in
%he.Russell case the transfer in trust was a?iirrevocable one
created with a Missouri trustee eleven yea% before ~the dece-
dent's death, the court held that while the transfer was .one to
take effect at death, the property of the trust had acquired a
busintss situs in Missouri and that the State of Kansas was
without jurisdiction to tax. In order for the court to reach
this result, it was necessary for it to distinguish Pea~rsonv,
McGraw, 308 U.S. 313 (1939). In the Pearson case, the courts
-hat an irrevocable trust in Illinois created~in contem-
plat~ionof death was taxable by the State of Oregon/the dece-
dent's.dmicile. At page 318, the court said:
"Accordingly, the transfer was taxable on the
authority of Curry v. McCanless, supra, and re-
lated cases. For constitutionally the property
was 'within the jurisdiction of the state'.of -
Oregon since that jurisdiction is dependent not
on the ~physicallocation of the uroperty in the
state but on control~over the oumer."
The Kansas Supreme Court distinguished the Pearson case
on the.ground %hat in that case the intangibles constituting the
trust corpus had never acquired a business situs in the state
of Illinois.
We regard this distinction as insubstantial and speci-
Central.Hanover
-- Bank & Trust Co. v. Kelly,
s:y;1ys.r;p~y;4;y. 1n the Centra~&iiv?r-&ii XL?j?FGm
case, a resident of New Jersey made an irrevocable transfer in
trust of certain securities which were at all,times kept in New
York and administered by the trustee. The trustee was to pay
the income to thengrantor for his life, then to his wife for
life if she survived him; if she predeceased him, the principal
Honorable Robert S. Calvert, Page 3 (Opinion No. WW-6S0)
was to go to his two.sons, non-residents of New Jersey. It was
held that a New Jersey inheritance tax upon the transfer, as
one made in contemplation of death and intended to take effect
in possession or enjoyment at or after death, did not violate
the due process or equal protection clause of the 14th amend-
ment. At pages 96 and 97, the court said:
"It is much too late to contend'that domicile
alone is insufficlent to give the domiciliary
state the constitutional power to tax a transfer
of intangibles where the owner, though domiciled
wlthin the state, keeps the paper evidences of
the intangibles outside its boundaries. See
Blackstone v. Miller, 188 U.S. 183; Blodgett v.
?%iberman, 2'('( U .S . 1; Curry v. McCzniess, 30.1X.S.
5(, and cases cited.. The command or the state
c.
.,!
.over the.?wner, the obligations which domicile
creates, .the practical necessity of associating
intangibles with the oerson of the owner at his
domicile since they represent only rights which he
may enforce against others--these are 'the founda-
tion for the jurisdiction of the domiciliary state
to tax. Curry vI McCanless, supra. We recently
applied that'principle,to sustain, on facts very
close to the present ones, Oregon's power to tax a
tran,sferof intangfbles held in Illinois by on&
domiciled in Oregon. Pearson v. McGraw, 308 U.S.
313.. And‘ see Van Dyke v. Tax Commission, 235 Wis.
.128,' 292.N.W. 313, aff'd 311 U.S. b05. The execu-
tion Of the present trust agreement in New York,
the circumstance that the remaindermen as well as
the trustee were non-residents of the taxing state
are quite immaterial. Domicile is the single con-
trolling consideration in this situation, bs it is
in the case~of the taxation of income derived from
activities outside the state. Lawrence~v. State
Tax Gommission, 286 U.S. 276, 279; New York ex rel.
Cohn v.- Graves, 300 U.S. 308"
The general rule is stated~i;husin 85 C.J.S., Taxation,
sEC. 1115, pp.852 and 853:
"Where the settlcr~of a trust of intangible pro-
perty r,etainss-~:ch
an interest in the property
that there is a taxable transfer at the time of
his death,, . .$he state in which the settlor is
domiciled at death may tax the transfer, although
the trust was estabiished in another state, the
trustee and the securities are located in another
state and'the decedent was a resident of another
Honorable.Robert S. Calvert, Page 4 (Opinion No. W-680)
state at the time he created the trust, and
although the transfer is validly taxed by
another state."
You-are therefore advised that the corpus of the trust
under consideration is subject tc an inheritance tax under
ArticW7117, V.C.S.
SUMMARY
Intangible personal property transl
ferred to a non-resident trustee by an
irrevocable trust agreement under bihlch
the Texas trustor was to receive the in-
come,.forlife, said'income being payable
r; ! upon trustor's death to a th%rd party
for life with remainder over to Tulane
University in trust is subject to Texas
inheritance taxes.
Very truly yours,
WILL WILSON
AttorneysGeneral
MMP:bct
APPROVED:
OPINION COMMITTEE:
Geo. P. Blackburn, Chairman
C. K. Richards
Milton J. Richardson
Z. J. Turlington-
REVIEWED FOR THE ATTORNEY GEFW-@.L:
BJV Leonard Passmore