Untitled Texas Attorney General Opinion

Honorable Robert S. Calvert Opinion NO. c-361 Comptrollerof Public Accounts Capitol Station Re: Method of computing Austin, Texas inheritancetaxes where husband wills to third parties his community one-half interest in govern- ment bonds payable Dear Mr. Calvert: to himself or his wife. You have advised us of the following facts in connection with the above captionedmatter. The decedent in question died testate leaving a will which contained,among others, the following provision: 11 . * .A11 other personal property which I may own at the time of my death, Includingbut not limited to my community one-half interest in all communityUnited States Government Bonds, howsoever they may be inscribed, I bequeath to my beloved children, Allen Bates, Doris Mae Cotton, and Betty Sevllla, share and share alike." The attorney for the estate takes the position that the decedent's community one-half interest in the governmentbonds should be distributedfor inheritancetax purposes to the three children named in the will rather than to the surviving wife. We do not agree in view of the decision In Free v. Bland, 369 U.S. 663 (1962). In the Free case, government bonds were purchased with community fusand issued to "Mr. or Mrs." Free who were residents of Texas. Mrs. Free had a son by a previous marriage. At Mrs. Free's death, the husband claimed exclusive ownership of the bonds; and the son, who was the principal beneficiaryunder his mother's will, claimed an interest in the bonds by virtue of the Texas community property laws. -1713 - Honorable Robert S. Calvert, Page 2 Opinion No. (C-361:): The Court of Civil Appeals' affirmed the trial courtls award of full title to the surviving spouse but reversed the trial court's award of reimbursementfollowing the holding in Smith v. Ricks, 159 Tex, 280, 318 S.W,2d 439 (1958),in which unconditionaleffect was given to the survivorship provisionsof the Federal regulationsgovernin.@~savings bonds..2 The Texas Supreme Court in the Free case, acting under the- authority of Hilley v. Hilley, mex. 569, 342 S.W.2d 565 C~,~~;II~,W;~I;; was decided while writ of error waspending in and which overruled the Ricks case, reversed the Court of &.vil Appeals and reinstatebt-hejudgment, of the trial court in a er curiam opinion. Bland v. Free, 162 Tex. 72, 344 S,W.2d 43$7X9- In overruling the Ricks case, the Texas Supreme Court made the following stats in the Hilley case at page 570: "It is clear that the Federal regulationsdo not override our local laws in matters of purely private ownershipwhere the interests of the United Statea are not involved. Bank of America National Trust & 'Savings AssIn v. Parnell, 352 U,S. 29, 77 S.Ct. 119, 1 L.Ed.2d 93." \ When the Free case reached the Supreme Court of the United States,it'mcted this propositionfor the reason that the survivorshipprovision is a federal law which must prevail over state law under the Supremacy Clause of the Constitution of the United States. Article VI, Clause 2. Thus, a decision of the Texas Supreme Court which gave effect to the provisionsof a will which devised the deceased co-owner'sone-half community interest in governmentbonds to a t,hirdparty was overruled;and ,full title to such interest was awarded to the surviving co-owner. L/337 S,W.2d 805 (1960) ?/The Treasury regulationsprovide that the co-owner of United States savings bonds issued in the 'or" form who survives the other co-owner "will be recognized as the sole and absolute owner" of the bond (31 C.F.R,, Sec. 315.61), and that "no judicial determir#tlonwill be recognizedwhich would defeat or impair i&e rights of survivorshipconveyed by these regulations." (Id. - Sec. 315.20). -1714- Honorable Robert S. Calvert, Page 3 Opinion No. (c- 361) Since the Free case has settled the question of property rights as to boxof the 'or" type, necessarily the distrl- bution of the decedent's one-half community interest In such bonds must be in accordancewith the property rights as they existed at the decedent'sdeath. It is at this time that the inheritancetax accrued under the provision:of-~Ar.ti,~~8: 14.01, Title 122A, Vernon's Civil Statutes, taxing transfers by "deed, grant, sale or gift made or intended to take effect in possession or enjoyment after the death of the grantor or donor. . D ,' Atty.Gen.Ops.Nos. o-6691; C-12. Once the tax has accrued, it is immaterialwhether the surviving spouse sees fit to give away the Interests to which she succeeded at the date of her husband's death. SUMMARY ----em- A provision in a will purporting to transfer to third parties the decedent's community one-half Interest In government bonds issued to himself or his wife is ineffective. At the decedent's death, the surviving spouse became the absolute owner of the deceased husband's one-half interest in the bonds; and the value thereof should be distributed to her for Inheritancetax purposes. Yours very truly, WAGGONER CARR Attorney General of Texas By: MMcGP:dl APPROVKD: OPINION COMMITTEE W. V. Geppert, Chairman Gordon Rouser Ralph Rash Kerns Taylor W. 0. Schultz APPROVED FOR THE ATTORNKY GKNFRAL By: Stanton Stone -1715-