TEEATJTORNEYGENE~
OF TEXAS
FVIJiL WILSON
*-x-r0RNEY GENERAL
February 28,,lg61
HonorableRobert S. Calvert Opinion No. WW-1003
Comptrollerof Public Accounts
Capitol Station Re: Reconsiderationof
Austin, Texas Opinion No. WW-922 per-
taining to taxability
for inheritancetax pur-
poses of bequest to the
United States to be used
for the retirementof the
National Debt in view of
new proposal with regard
Dear Mr. Calvert: to.use of said bequest.
In Opinion No. W-922 this office-consideredthe taxabil-
ity .for.inherLtance
~tsx purposes of a beque~st,in
trust to the
United States Government to be used'forthe retirementof the
National Debt. The specific bequest reads as follows:
'I direct that any Income from'the
Susan Vaughan Clayton Trust.No.,2 . . .
be paid for the period provided in the
instrumentcreating said Trust, as
follows:
"(a) One-half (l/2) of such income
to my beloved country, the United States
of America, to be used for the retire-
ment of the National Debt. . .. ."
This bequest was subject to inheritancetax unless exempt
by the following provision of Article 14.06-ClassE, ch. 14,
Title 122-A, Ts.x.-Gen.,V.C.S.:
"Provided,however, that this Article
shall not apply .onproperty passing to
or forthe use of the United States, or
to or for the use of any.religlous,educa-
tional or charitable orgsnlzation,~incorpo-
rated,,~unlncorporatedor in the form of a
trust, when such bequest, devise or gift
Is to be used within this State. The exemp-
tion from tax under the preceding provisions
of this Article shall, withoutlimiting its
applicationunder other appxopriate- clr-
cumstances,apply to all or so much of any
Honorable Robert S. Calvert, Page 2 Opinion No. WW-1003
bequest, devise or gift to or for the
use of the.,UnitedStates, or a religious,
educationalor charitableorganization,
which is, In writing and.prior to the
payment of the tax, irrevocablycommitted
for use exclusivelywithin the State of
Texas or transferredto a religious,
educationalor charitableorganization
for use exclusivelywithin this State.".
,Inan effort to obtain exemption, the following proposal
was submltted,ina letter from William B. Butler, United States
Attorney for the Southern District of Texas, by Norman W. Black,
Assistant, dated July 13, 1960, addressed to Honorable Robert S.
Calvert,.StateComptrollerof Public Accounts.
"I.have informed the Department of
Justice (and they have informed the Secre-
tary of the Treasury) that Article 14.06
offers a possibilitywhereby the Unit@
States could,legally.avoidthe payment:~
of State InheritanceTaxes onthis Trust .':
the tax is estimated at approximately
5400,000.00). The Secretary of the
Treasury has suggested the following:
arrangement,whereby the ,incomefrom the-
bequest by the late Mrs. Clayton could ~1
be used exclusivelywithin the State:of
Texas for the retirement of the National
Debt. That proposed arrangement is as
follows:
"'The Treasury would make special
arrangements.toreceive within the State ~
of Texas moneys representingincome de-
rived from the Susan ,V.~ClaytonTrust No.
2 and would maintain them in a separate
account in the name of the Treasurer of
the United States in the State of Texas
and not interminglethem with sny.other
funds of the United States. Such moneys.
would be used solely to redeem public
debt obligationspresented to the 4’Waswy
for redemption in the State ,ofTexas.
"'Specifically,.the~,moneyswould.be
paid to the United.Statesat the.#Federal
preserveBank of Dallas; Texas, for credit
~to the Treasurer of the United States.: :
The Treasurer would maintain a special '~
deposit account with.the Eederal Reserves,
Honorable Robert S. Calvert,.Page3 Opinion No. WW-1003
Bank for these particularmoneys. This
account would be separate from the account
now maintained by the Treasurer with the
Federal Reserve Bank of Dallas for General
operatingpurposes. .The moneys thus
received in Texas and held on deposit with
the Federal Reserve Bank of Dallas would be
identifiedspecially on the books of the
Treasury to be available for retirementof
the national debt. From time to time, as
public debt obligationsare presented to
the Federal Reserve Bank of Dallas for
redemptionby that Bank as fiscal agent
of the United States, the Treasury would
direct the bank to redeem such obligations
~-fromthe moneys held on deposit In the.speclal
account representingthe income from the
bequest."'
Opinion No. WW-922 reviewed the controllingcourt decisions
and reached the following conclus-ion:
"We think that the foregoing decisions
demonstratethat the 'use1 contemplated
by the statute is a direct, actual uses
within the State for the benefit of and
limited to its citizens. We,do not think
that this requisite,usecan be satisfied
by the~mere retention in the.State of
funds devised for the retirement of the
national debt. Any benefit which the ,~
residents of this State would receive
under the proposed arrangementwould be ~~
at best an incidentalbenefit shared
equally with all of,the residents of all
other forty-nine states."
In view of this conclusionexemption was denied.
The United States, through Its appropriateofficials,has
submitted another plan which It is urged would satisfy the
requisite use withinthe State of Texas and result in exempting
the bequest from any inheritancetax. We set out the plan, as
submitted,below:
"The Treasury would make special arrange-
ments to receive within the State of Texas
moneys representingincome derived from the
Susan V. Clayton Trust No. 2 and would maln-
tain them in a separate account ln.the name
Honorable Robert S. Calvert,,P~age
~4 Gpinion~.No.
~~-1003
of the Treasurer of the United States
in the State of Texas and not intermingle
them with any other funds of the..Unlted
States. Such moneys would be used solely
to redeem public debt obligationsowned
by residents of the State of Texas pre-
sented to the Treasury for redemption In
the State of Texas.
"Specifically,the moneys would be paid
to the United States at the‘Fe.deralReserve
Bank of Dallas, Texas, for credit to the
Treasurer of the United States; The Treasurer
would maintain a special deposit account with
the Federal Reserve Rank forktheseparticular
moneys. This account would be separate~.from
the account now maintained by the Treasurer
with the Federal Reserve Bank of Dallas.for~..
general operating purposes. The moneys thus
received in Texas and held on depo~sitwith.
the Federal Reserve Bank of Dallas.would be
identified specially on the books of the
Treasury to be available for retirementof
the national debt. From time to time, as
public debt obligationsowned by residents
of the State of Texas are presented to the
Federal Reserve Bankof Dallas for redemption
by that bank as fiscal agent of theunited
States, the Treasury would direct the-bank
to redeem such obligationsfrom the moneys
held on deposit in the special account repre-
senting the Income from the bequest;",
It is evident that the only differencebetween the pro-
posal first submitted and the last proposal is that In using
the trust income for the retirement of the National Debt, such
use would be limited to the discharge of such public debt
obligationsas are owned by residents of this State.
Although the Government'sposition In connectionwith this
new proposal is appealing on its face, we do not think it will
bear analysis. True, only residents of,Texas will have obliga-
tions of,the United States Governmentsatisifed from the bequest,
but are we to assume that an obligation owned by a Texas re,-
sident Is, for this reason, any less an obligationof the Govern-
ment of the United States or that the Government'sliability
is limited to this bequest or mustbe satisfiedtherefrom?
Wherein lies any~benefitto Texas residents Lnthe satisfaction
of these obligationsfrom this special fund rather than from
any Governmentrevenues? Were,,we,to assume .thatthe Govern-
HonorableRobert S. Calvert, Page 5 Opinion No. WW-1003
ment will default in whole or in part in the discharge of
its obligations,Texas residents, as a result of the con-
templated commitment,would have no added security for their
loans. The proposed commitmentcould not so change the
Government'sexisting contractualliability to all its
creditorsnor effectuateany priority for Texas creditors.
Finally, who will ultimatelybenefit from the retire-
ment of part or all of the National Debt of the United States?
Not just the creditorswho are repaid the loans that they have
made to the United States. Rather, all of the citizens of the
United States will benefit in the resulting diminutionof the
tax burden which they must bear.
We must, therefore,again conclude that any benefit which
the residents of this State would receive under this last pro-
posed arrangementwould be, at best, an incidentalbenefit
shared equally with all of the residents of all the other forty-
nine states. The requisite "use within this State" would not
be satisfied,and exemption must be denied.
SUMMARY
A bequest in trust to the United
States to be used for the retirementof
the National Debt may not obtain exemption
from inheritancetaxes by a commitment
that the bequest will be used to redeem
only public debt obligationsowned by
Texas residents.
Yours very truly,
WILL WILSON
Attorney General of Texas
MMP:cm
APPROVED:
Marietta McGregor
OPINION COMMITTEE: Assistant
W. V. Geppert, Chairman
William T. Blackburn
Leon Pesek
John C. Steinberger
REVIEWED FOR THE ATTORNEY GENERAL
By: Morgan Nesbitt