Untitled Texas Attorney General Opinion

R-363
EATT~R~Y GENERAL
OPTEXAS
June 24, 1947
Honorable Qeorge H. Sheppard
Comptroller of Pub110 Aacounts
Auatln, Texas opinion NO. V-264
Re: Whether or not under
submitted facts a real
property transfer mede
leaa than tvo veara be-
fora decedent's death
la subject to Inheritance
tax by virtue of Article
Dear Sir: 7117, B.C.S.
You have asked ior an opinion from this Depart-
ment aa to vhether or not the property described in your
request la subject to inheritance tax by virtue of Article
we quote the follovlng rrom your letter of
igli Kf%47:
"Nr. Albert 1. Bitter died a resident
o? Bexar County on Januaq 23, 1946, and at
the proper tlw an lnherltance tax report
vaa filed for his estate. We are nai examln-
log the report and In our lnveatlgatloa ve
have found that the decedent In September of
1944, by deed .aonveyed to the Frlara of the
Atonement, Iuc., a religious orgenlaatlon In
Rev York, 943.45 acrea or land In Bexar Count*,
and in conalderatlon thereo? aald Frlara of the
Atonement, Inc. agreed to erect tvo ahumhea at
a coat oi not leaa than $35,000.00 eaah. The
time and plaae, aa ~011 aa the plana for erea-
tion o? aald ahurchea, are at the dlaaratlon of
the said Friar8 of the Atonement, Ina.
'Furthemore, the Friara of tha Atonement,
Inc. promlaea and agrees to pay to the lald Al-
;;z f. Bitter the sum of 4250.00 per month ior
.
The aopy of the instrument vhlah you enclose and
to whlah you refer aa "the deed" falls to ahov a place for
the grantor's rignature. From the faata at our dlapoaal
Honorable George H. Sheppard - Page 2
we aannot aaaertain whether or not “the deed” woo proper-
ly exeauted and delivered in Oompllance with the requlre-
menta of Artlale 1288, R.C .S.; however, we will aaaume
for the purpose ot answering your question that there waa
an absolute’ and valid conveyanaa by Albert M. Bitter to
the Friars of Atonem&t, Inc. of all of his lntereat in
the property described by the instrument.
Prior to 1939 there waa no provision in our
statutes f’or taxing transfera made “in contemplation of’
death”. At that time the legislature lnaarted in Article
7117, Ch. V, Title 122, R.C.B., the following provision:
"Any transfer made by a Brentor, vendor
or donor, whether by deed, grant, sale or
gift, shall, unless shown to the contrery, be
deemed to have been made In contemplation of
death and aubjeat to the same tax aa herein
rovlded, if such transfer is mada within two
P 2) years prior to the death of the grentor,
vendor, or donor, of a wterlal part of hla ea-
tate, or If the transfer wde within auah
period la In the nature of a fkal dlatrlbu-
tlon OS property and without adequate valua-
ble aonalderetlon.”
This provision waa retained unchanged when Art-
icle 7117 waa aga.ln amended In 1945.
The source of wny of the provlalona of Chapter
V, entitled “Iuherltanoe Tax”, lies in the Federal’ Eatate
Tax Act, 26 U.S.C.A. Int. Rev. Code, Ch. 3. The preaump-
tlon la that the leglalature knew of’ the oonatructlon
which had been given theae provlalons prior to their adop-
tion and therefore intended to adopt the statute as oon-
atrued by the Federal Courts. Blackman v. Hanaen, 140 T.
536, 169 S.W.2d 962, citing Board of Water Engineers v.
MolCnl~ht 111 Tex. 82 229 9. .
n*& other auth<lea Tihri Ezi,“,“k; iedzl
caaea decided under Section 611 (c) of the Federal Aot
from which those parts of Article 7117 which are deolaive
of thla question are dravn, muat be considered. Bar need
our oonalderetlon be limited to those Federal case8 which
were decided prior to 1939; for lnaamuoh aa our oourta
have not aa yet construed that part of the ‘39 amendment
whloh provides that certain trauafera if wde In aontempla-
tlon of death are taxable, the recent pronouncamenta of
the Federal Courts are highly persuasive.
Honorable George B. Sheppard - Page 3
Section 811 of Title 26, U.S.C.A., provides
that there shall be included In valuing the gross estate
of a decedent “all property, both real and personal, tan-
gible and intangible, wherever altuated except real pro-
perty altuated outside of the United Statea . . .” to
the extent of the decedent ‘a interest, aa set out In the
aubdlvlalons which follow.
Subdivision (c), “Tranafera in contemplation of, or tak-
ing effect at death”, reads aa follows:
“To the extent of any interest therein
of vhioh the decedent has at any time msde
a transfer, by trust or otherwise, in con-
templation o? or intended to take effect in
poaaeaalon or enjoyment at or after hi8 death,
or of which he has at any time wde a trana-
for, by trust or otherwise, undar whlah he
haa retained for hi8 life or Sor any period
not ascertainable without referenae to hia
death or for any period which does not in
?act end beiore his death (1) the poaaeaaion
or enjoyment of, or the right to the lno ome
from, the property, or (2) the right, either
alone or in oonjunotlon with any person, to
designate the persona who ahall possess or en-
joy the property or the income themfrom; ex-
cept in case of a bone fide sale for an ade-
quate an4 full oonaldaratlon in money or money’8
worth. Any transfer of a wterlal part o? hi8
property in the nature of a final dlapoaltlon
or dlatrlbutlon thereof, wde by the deoedent
within two year8 prior to hla death without ouch
aonaldaratlon, ahall, unleaa ahown to the oon-
trery, be doomed to have been wde in aontampla~
tion of death within the meaning of thla rub-
ohaptar,”
A atriklng and important dl?feranaa betwean tha
uoted prowlalona of Artiola 7117 and thoaa o? Ueation
1 11 (a) lie8 in the foot that under the Fedora1 lav “83,
tranafar” whloh the dacadant haa “at a
truvlalf wda “In oontemplatlon -j&&&y@
o !gp;,:‘,
Statute la allant with regard to the taxing of %y trann-
iera’ In oontamplatlon of daath exoept thoaa wde within
two (2) years prior to the death of tha gmntor, vandor,
or donor’.
Honorable George H. Sheppard - Page 4
The trensfer In question here was w4e within
the two year period. The Fed&al aaaea which have dealt
with the a``lloatlon of the rebuttable weauaMlon (ao
olaaalfle4~in wny oaaea fdr example, ir.3. v. Welli
283 U.S. 102, 51 3. Ct. 447; Rea v. Helner, b F ( 2& 389;
Mgera v. Magruder, 15 F. Supp. WM) un4or the Federal law
an4 whiah were decided before 1939 should therefore be de-
alalve unleaa other w jor variations exist. It ahould be
note4 at the outset, however, that those oaaea dealing
with transfers in onntamplatlon of death w4e “at any tlms”
are ln4lspenaable to anx study of the meaning of the phrase
“contemplation of death as coastrued by the Federal aourta.
Let ua then examine the transfer w4e by Mr. Al-
bert M. Bitter to the Friars of the Atonement, Inc. In the
light of the f oregolng general atatementa .
First of all here we have a ‘trenafer” “wde by
a grantor ’ “by deed ” “within two (2) years prior to the
death of the grantor’. 30 muoh la clear an4 ln4laputable.
The prellmlnary lnharltanoo tax report from
your files and other Information whloh you have given us
eatabllshea that the value of the property tranaierred
vas approxlwtely $80,000 an4 that the estate left at
death by Albert R. Bitter vaa worth approxlwtely $35,000”.
Thus at first glanoe there would seem to have been a trana-
for “of a wterlal part” of Albert M. Bitter88 eatete.
However. the atatlatloa ooatplled by Mr. Edmund
W. Pavenatedt and-given la the very e%oellen% artlale Taxa-
tion of Trenafers A Pro osa7
&
pinion, would Indicate other-
wise. Mr. Pavenatedt says that:
f’Aa far aa ooncerna the vague Gequlre-
q entthat the transfer must be of a 8wteria1
part* of decedent ‘8 property, the 137 oases
whloh mention the proportion o? the gift to
the total eatate show the following meanlng-
leaa results :
Honorable ffeorge H. Shopper4 - Page 5
“Gifts held to fflfta held
be not in oon- to be in
temp~atlon of 0 ontempla -
death tlon of death
8
21
18
21
6
8
6
8
Thus there would seem to ba no one guiding
Federal conatruotlon of thla part of the statute whloh
oould be pre8Umad to have ‘been adoptad at the time the
Texas statute was auaoted; nor wy ombe drawn by bay
of parauaslve analogy from thq later Federal aadea.
Tha failure of the Federal Court8 tb give more oonaldsra-
tlon to the statutory requirement of the “wtarlallty” of
the part tmnafarred la, in the wrlter~a opinion, aaally
explainad. In general the rebuttable pr~aumptlon created
by the Federal statute adds little to the ouatowry pre-
sumption In favor of the oorreotnaaa of clny 4etermlnatlon
wda by the Commlaaloner.
Death, (previously olted);
TTTj-54 3. Ct. 8; Commiaai
249; 320 U.S. 467.
far regardleaa of Its prop
the total estate la taxable if wde in oontemplatlon of
death, an4 alnce the finding of “taxability” by the Com-
q laaloner reaulta in the aame allocation of the burden of
proo? aa doer the olauae which oraatea the rebuttablq pre-
aumptlon, there la little axouae for wklng “wterlalltyw
a 4aolaiva faator when the transfer oaoura within the two
year period. To do ao would result in wklng it more dlf- P
floult to Impoae + tax on transfers wda during the very
period within whloh tranafera ara preaumptlvaly wda in
contemplation of death.
Under the Texas atatute, however, the only tram-
fara vhlah are tamble at all are tnoae althar OS “a w-
terlal part” of the eatate or “In the nature o? a final
dlatrlbut%on of property”. Thbrefore, the “wter1811tf d
the part trenaferred aeema an lnsaaapabla requialte to
tha lmpoaltlon of tha tax where the tranafar la not aa-
railed aa “being in tha nature of a final dlatrlbutlon at&“.
Honorable George R. Sheppard - Page 6
This De~rtme``'a qpinlon o-6678 300 F. 961 (writ of certiorari
denled in [I-~ . 3. 628. 45 3. Ct. 126). The
Court hel4~that~“falr oonalde~tlon” was ’ a consldera-
tlon which under all the circumstances is honest, reaaon-
able, and free from suspicion, whether or not strictly
~a4equate1 or 'full'". One of the groun4s given for the
\oitibgt;ts that ti previous revenue act he4 use4 the vor4
Evidently dlspleesed with this reqult Con-
gi&aii befoie 1939 again’ ohanged the provision and the
;l&s; E used repeatedly by the Interns1 Revetue Code,
. Title 26, Sections 811 and 812 is adequate
an4 fuil'c&l4eretlon for money or money’s .worth”. Al-
though, the+erms of the Texas statute “adequate val-
uable oona14eretlon” are not literally’ thoaa of the Fed-
eral statutes, und,er the ~holdlug of the Ferguson case;
the use of``the word “adequate” alone down48 aomethlhg
more by way of consideration that “which under all olr-
otances la honest, reasonable an4 free from auaploion”.
A “valuable oonsl4eratlon’! wp consist of
something other than the payment of money Kennedy Pasture
Company v. State, 196 S.W. 295. @‘Valueble* means more
than “nominal”. The aubjeot wtter of the oontraot an4
its value to the partlea ooncerned must be aonaidered in
determining whether or not a “valuable oonalderatlon” ex-
iota; however, it is not riecesaary that the aonal4eratlon
exchanged be, bf relatively equal value. ffrlffln v. Bell,
202 3.w. 1036, 1037.
Let ua examine the various ret ltala in “the
deed” which set forth the ootil4emtIon for thla transfer.
A phrase In tha seaon pa&graph reads aa follows:
~ITRJESS: That the said Albert H. Bitter,
for an4 as an evidence of love an4 devotion for
Ronorable Qeorge Ii. Sheppard - Page 8
the Rown-Cathdllo Religion and the dealra
to have the Ronmn-Cath~llo Religion apreed
to al; wnklnd, 4oea by theae preaenta, etc.,
. . .
If thla phrase be oonatrued aa'belng the e,qulva-
lent of a atatement that Albert M. Bitter wde the con-
veyance "In oonal4emtlon" of "love an4 devotion" It la
well settle4 that ouch conalderatloh In co&airs olmum-
stances wy be held to be "good" consideration but that lt
la not "valuable" oonal4eratlon. Bouvler'a Law Dictionary,
3rd Revision, page 612-613.
By the third paragraph of "the dead' "the Frlara
of the Atonement, Inc. promise8 4nd agz%ea to pay.the arid
Albert M. Bitter, the sum of Two Hundred and Flfty(~25CJ.00)
Dollars ‘per month on the flrat day o? each month, oommeM-
lng July 1, 1944, and ending with the regular monthly pay-
ments next proceeding the death of the said Albert 1.
Bitter". Whether or not an annuity aonatitutea aufflolac&
conaI4eratlon within the m6anlng of the partlaular atatuta
has been aonal4ere4 in wny deolalona. In general, "tha
4eclalve point tipon which the raault aeew to depend la
. . . whether or not the annuity to be pald tha transferor
in oonatderatlon for the transfer of the property at
least equals tha eoonomia value of the property tranaferr-
ed. Aaaumlng that this statement la oorrect, the teat la
whether or not con.sl4erlng all the almumatanoea, the
transferor could have bouuht la the oDen smrket the atlpu-
latsd annuity In exahange-for the pro&&y tranaf&red.
157 A.L.R. 995. See partloularl note on U Ike v. Corn-
,86 F. (26) &+
.
At the time Albert M. Bitter w4e the transfer
to :the Friars. of the Atonement, Inc. he waa~past aelienty
three yeara of age. Even aaaumlng that he woo' then in ex-
cellent health for a men of hla age and that he ha4 @id
the highest current wrket prloe, he 00~14 have purchased
an annuity to pay the amount the Frlara of the Atoneme&
agreed to pay for approxlwtely thirty-one thousand dol-
lara. Instead he tmnaferred property worth OlghVthou-
aand 4ollara. Thus aa oonslderatlon for the tmnafer the
annuity vould aoamely meet the 014 teat of the Farguaon
0480; i.e., under all the olmumatancea it does not aeem
to be "honest, ~aaonable, and free from auaplolon." It
falls far ahort of being the Radequate valuable oonaldera-
tlon" requlalta to gaining the exemption.
Honorable George H; Sheppard - Page 9
Finally by paragraphs 5, 6 an4 7 of "the deed"
the Friars of the Atonement, Inc. promise to eract tvo
memorial ohurahes at a cost of not leas than $35,000
each. One church is to oonatltuta a memorial “to the
honor of Mr. Albert M. Bitter and his relatlvea”; the
other, “to the honor of q . . Mrs. Albert Hi. Bitter
an4 her relatives.” The Friars of the Atonement prbm-
lse to “diligently look to the erection of both Churches
aa aoon aa they can conveniently do ao after sale bi, ln-
come from the aforementIon~4 property wkea this proce-
dure f'lwnalally possible; but the time and plea0
. . are at the diaaretlon of The Father OeneMl of the
irlara of the Atonement, Inc. in oonaaltatlon with hi8
Bosrd of Dlreotora.”
Many Federal aaaea have dealt with the deUuoti-
blllty of decedent Ia unpaid pledge8 to ohrrlt8ble, rbll-
glous or a4uoatlonal lnatltutlona. The analogy between
that problem an4 the one we are here oonal4atilng la ob-
vious . Although it la genemlly oonaeded that a pledga
w4e In conaldemtlon of a atlpulated applioatlon or ua6
of tha property transferred la au?flalently supported by
aonaldar8tlon to aonatltuta a valid oontraot, moat of the
oaaaa hava held that this wea not au??lol~nt to meet the
raQulrament o? ‘303 (a) (1)’ irhioh allored sxaiptioaa for
ulaiw, eta., ag8laat thi 6atate, eta., I? ‘fos’an "6U6-
quate and full oonaideNtlon’?or money or moa6pa worth.”
157 A.L.R. 1015. The tvd ‘leading oaaea vhloh riloh thla
the amount would hrva beaa’exaarpt aa a oharitablr ba-
quart; but the paat holdln#O era Otlll lirt;horlty gedm- .
ally for what ooaatltutea adequata aad vrlwble ooaalU6M-
tloa for money or monay’a worth.“)
Ror doea the agr6awat to ereot the Qhturohaa,
to ethar with tha payment of the Onnult ooMtitut4
%~uififbn6. ooaaIdwatlon~” To 80’bob would in
effaot oraata a new lx a mp tlo for nrali~loua, lduoatlornl
or oharItabla bequeataI To be emopt undrr Art1010 7122,
R.O.8., a r411 loua, lduoatIon41 or ohrNtrbl@ bwu@at
mu4t ba used wf thin the 8tat4, aad, by r404nt dOOillOII,
thla geographlorl llmltatlor: oa thm u81 muat bo 6xpr648-
ed In the v111 ltaalfr
Statea v. Shrppard, 198
Honorable George H. Sheppard - Page 10
men who knew that death must soon come to him could by
aaoeptlug a oonal4eratlon leas than “a4equate and val-
uable” and, in addition, by wklng certain “non-geo-
graphical” stipulations aa to uae of the property trana-
forred clmumvent the requlrement~s of both Artlole 7122
and Article 7117.
Having thus reeohad the ooncluaion that this
transfer vaa not wde for an “adequata valuable oonal4ere-
tlon”, it la subject to tax if the transfer was made “in
contemplation of death”.
In the leading oaae of United States v. Wells,
283 U.S. 1102, Rr. Chief Justice Hughes aam
“There aan be no precise dellmltation
of the transactions embreced within the coa-
oeptlon of treaafer ‘In ooatemplatlon of
death’ as there aan be none In relation to
fraud, undue lnfluenae, due process of law,
or other famlllar legal concepts whloh are
applicable to wny varying olmumatanaea.
There is no escape from the necessity of
carefully acrutlalzIng the aImumataaoea of
each oaae to detect the dominant motive of
the donor in the light of his bodily and
mental condition, and thus to give effeot to
the wnlfeat purpose of the statute.”
Mr. Pavenatedt has a greet deal to say about
this “dominant motive teat” and the dlffloultlea attend-
ant to its applloatlon in the Yale Law Revlaw Art1010
prevloualy quoted. He points out that shortly after the
Wells oase was decided the toot woo incorporated in U.S.
Tres. Reg. 80 (1934 Ed.), Article 16 but that the vary-
ing decisions that followed and the dlaoouraglng reobr4
of the Government In its attempt to prove the requisite
motive of a dead men in oontemplatlon of death cases led
to T. D. 4966, 1940 - 1 Cum. Bull. 220, which, deaplte
the Wells case, in effect atatea, among other things,
that a transfer la in oontemplation of death I? It la
prompted by a motive associated with death, even though
it nay be mo EFvoted more strong&by motives alaarly aa-
acclated with life. However, since Mr. PaveMtedt@a
article woo written. the Sumsme Court haa again spoken
on this zmtter. Alien v. T&at Co. of ffeorgia, 66-3~.
Ct. 789. vaa deaiaed Januarv 28. 1940 . The court aava
that oertlorarl waa granted beoiuae of oonfllot betwken
the judgment of the Circuit Court of Appeals and those
Honorable George H. Sheppard - Page 11
of other clmults . The following part8 of the opinion
reaffirm the “dominant motive” test.
“It vaa said in U. 3. v. Wells toi-
q
tatlon omltte4j that a gift I In contem-
plation of death vithln the ianlng of the
estate tax law if ‘the motive which ln-
dwea t It la ‘of tha sort whloh lea48 to
teatamautary 4lapoaltloa, . . . Slaoe tha
purpose oft the contemplation of death pro-’
vision was to reach substitute8 for taata-
mentary 4lapoaltlons in order to prevent
evaalona of the tax ~Itatlon to U.S. v.
the statute la aa~,
for nay reaaoa the deoe-
deat beoomea ooacerned about what will hap-
pen to his property at his’ death aad aa a
result takes aotlon to oodtrol or in aoma
wnnar affaot Its devolut;loa.
“Thet la a oorreot statement of the
governing principle for It presumes tha
exiatenoe of tha requlalta motive. The
tmaafer la,wde in aoatemplatioa of death
I? the thought of death la the ~lmpelllng
oauae of the transfer’. City Beak Farmer8
Trust Co. v; %aOowan 323 B.S. 294 93 G
ct 4% 49c) The trana?er.&y be’ao
mklviied eden though the daoedent had no
away to4ay will not be included In his aa-
tata when he dies. All auah gifts plainly
are not wde Ln contemplation of death In
the atatutory aanaa. Many gifts, oven to
those who are the *tllM1 an4 appropriate
objeota of the donor18 bouaty, are motlvat-
ed by ‘purpoaaa aaaoclated with life, mth-
or than with the 4IatrlbutIoa of property
in antlolpation of death.’ &!.tlng U. 5. v.
Thor0 motlvea aover a Wide range.
Federal Eatate k Gift Taxrtlon
609 at aaq.
,“Thare may be the desire to reo ogalae'
apeolal aaeda or exlgenalea or to dlaoharga
moral obllgatlona. Tha gratl?ioatlon of
Honorable George H. Sheppard - Page 12
such
._ desire
._ my._ be -8 m-e
--
cive man any tnougn or aeath.
U&.V;.V~;l”,7b,
I
tlve Is a question or raot in eaoh oaae.”
TEmphaala added)
Various evldentlary factors ,$ee 1 Paul Fed-
eral Estate and Qlft Taxation (1942) 8 615 et
tiry tn t1 that the treasfer to
o~Atoneme&pi~iU~deo~n ooatemplatloa of deeth. The
advanaed age o? the traneferor, the great value of the
property transferred a8 well es Its proportion to the
decedeatts estate all seem to lndloate that the deced-
eat waa mating a final dis~oaltloa of hla property.
Likewise, by the will lteelf the Oblate Fathbra, aa’
rea Id ue reoelve 429 001.81 of the
$32,201%1~%ei&iete aa eat&ted in the p``~llrnlnary
Inherltaaoe Tax Report. Thus Mr. Bitter by transfer
before death and by wlll’left virtually all he posseas-
ed to the Cathollo Churoh. , The traneier bei ol the
bulk of his estate it would seem to be not on Y y ‘a
part of the general testemeatary aoheme”, 1 Federal
Eatate ‘and Gift Taxetlon, prevloualy olted, but the moat
tmportaat part oT the testamentary aohime. The ohurohee
that bre to be erect&d aa eu ultlwte reault of the traea-
fer are to be~m6mo+lela “to the honor of l&. ‘Albbrt R.
Bitter atid his rexatlveb. a,nd t6 the honor oi Mm.
Albert Y. Bltter~and her’r&~tlveti’i All these faota
polat’to the Conoluelon that the thought of deeth, aa a
c6ntrolllug motive, prompted the transfer. C*rta laly
notie o? the facts at our dldpOea1 are su?floleatly la-
dlcetlve of ‘motives asaoaleted with life” to overoome
the ptatutorf preaumptlon that the trauefer was wde in
coutempl&loa oi- desth. You are thereiore advised. that
the property tretiferred by Albert H. Bitter to the Friara
bf the Atoaemeat, Iio., la subjeot to lnherltanod tax by
virtue of Artlole 7117, R.C.S..
SUEMARY
In order to c~ome within thet part oi
Article 7117, R.C.S., whloh provides that
transfers -de within two rears prior to
the death of the decedent atie. presumptively
mede In aontemplatlon of death’the property
transferred q unt oonetltute a tmterlsl part
Honorable Qeorge H. Sheppard - Page 13
of the estate or the transfer must be in
the nature of a final distribution or pro-
perty. Annuity and agreement to build
churches did not constitute the adequate
valuable consideration necessary to exempt
materiel part of estate transferred within
two (2) years of death from State lnherlt-
ante taxes. Where the submitted facts fall
to overcome the statutory presumption of
"contemplation of death" the property trana-
ferred Is subject to Inheritance tax by
virtue of Artlale 7117, R.C.S.
Yours very truly
ATTORNEY
GENERAL
OF TEXAS
'--cclLe,
By?i?T%k . Creel
Asalstant
MC/lb
ATTORNEY QlllfBRAL