Untitled Texas Attorney General Opinion

- . 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.