Hen, Gee. H. Sheppard Opinion No. V-668
Comptroller of Public Accounts
Austin, Texas Re: Whether inheritance
tax due on receipt of
decedent’s interest
in certain life iasur-
ante policies.
Dear Sir:
You have requested the opinion of this office en the
above-captioned matter under submitted facts whick we quote
from your letter of March 10, 1948:
“John H. Frost II died en December 15, 1945,
. . . He died testate and appointed the Frost Na-
tional Bank of San Antonio executor of his estate.
“An inheritance tax report for his estate has
been filed, and the value of all assets reperted by
the executor has been agreed upen between the ex-
ecutor and this department; but there is a contro-
versy between the executor and this department as
to the inclusion of the c,ash value of six insurance
pelicies taken out by decedent’s father upan his
own life and assigned in 1937 to the decedent and
his brother jointly, or the survivor of them. Both
J. H. Frost, SP., the father, and J. H. Frost, Jr.,
the brother, survive decedent.
“Upon the date of death of John H. Frost II, the
six insurance policies had a cash surrender value
of $181,254.81, and we have included one-half of this
value ($9Q,627.40) as a part of the estate of John H.
Frost II. By this inclusion, the tax has been increas-
ed approximately $4,483,0@.. I 01s
Further information regarding the nature of the decedent’s in-
terest in the policies is given in the accompanying letter ef t~he
attorney for the executor, which letter contains copies of the
assignment of the Great Southern Life Insurance policy (in the
amount of $50,000), the +equests for change of life owner on
five Aetna Life Insurance policies (in the total amount of $4OO,-
000), and the endorsements on the five policies showing the
Hon. Geo. H. Sheppard, Page 2 (V-668)
change of Life Owner. The Great Southern Life policy was as-
signed to “Joseph Hardin Frost, Jr., and John Frost, II, share
and share alike or survivor, . .‘I., and the Life Owner designation
on four of the Aetna policies reads, in part, as follows:
“Until the death of Joseph H. Frost, Jr. and
John Frost, II, sons of the insured, said sons,
jointly, or the survivor shall be the life owner.
“After the death of the survivor of said sons
the executors or administrators of such survivor
shall be the life owner.”
The life owner designation of the fifth policy, No. N-,797,-
783 omitted the words, “or survivor * following “jointly.” The at-
torney’s letter states that “the discrepancy between the request
for change and the endorsement made on the policy was apparent-
ly due to an error in transcribing from the request to the endorse-
ment and that the request for change Andythe intention of J. H. Frost,
Sr. as shown in that request. . . was controlling.* We concur in
this conclusion, particularly in view of the provision relating to the
death of the survivor.
To recapitulate, J. H. Frost, Sr., who is still alive, took
out policies of insurance payable to his two sons, John Frost II and
J. H. Frost, Jr. In addition to being beneficiaries, the two sons be-
came, by virtue of the assignments described above, the owners of
the policies and entitled to various benefits thereunder, including
the cash surrender value of the policies. One of the s’ons, John
Frost II, has now died; and the question is whether the receipt of
his interest in these policies by the surviving son is subject to the
Inheritance Tax levied by Article 7117, V.C.S.
The pertinent provisions of Article 7117 are as follows:
“‘All ‘property within the jurisdiction of this State,
real or personal, corporate or incorporate, and any
interest therein, including property passing under a
general power of appointment exercised by the dece-
dent by will, including the proceeds of life insurance
to the extent of the amount receivable by the executor
or administrator as insurance under policies taken
out by the decedent upon his own life, and to the ex-
tent of the excess over Forty Thousand Dollars ($40,-
OO@.O,) of the amount receivable by all other benefi-
ciaries as insurance under policies taken out by the
decedent upon his own life, whether belonging to in-
habitants cf this State or to persons who are not in-
habitants. rssardltss of whether such property is lo-
catedlwitbin tr wltkout this State, which shall pass
Hon. Geo. H. Sheppard, Page 3 (V-668)
absolutely or in trust by will or by the laws of de-
scent or distribution of this or any other State, or
by deed, grant, sale, or gift made or intended to
take effect in possession or enjoyment after the
death of the grantor or donor, shall, upon passing
to er for the use of any person, corporation, or
association, be subject to a tax for the benefit of
the State’s General Revenue Fund, in accordance
with the fallowing classification; . . .”
The attorneys for the executor take the position that
“the assignment of the Great Southern Life policy and the en-
dorsements on the Aetna Life policies by their terms constituted
Joseph Hardin Frost, Jr. and John Frost II, joint owners, with
right of survivorship; 0 that “the contractual provisions for sur-
vivorship resulted in the policies being owned by Joseph Hardin
Frost, Jr. and John Frost II as joint tenants, with right of sur-
vivorship. . . ‘with all the rights of such tenants in common law,
including the right of survivorship;‘” and that the provisions of
Article 7117, above quoted, do not impose a tax upon the privi-
lege of receiving an interest in a joint tenancy by the surviving
joint tenant.
Although Article 2580, V.C.S., abolished the doctrine
of jus accrescendi in this State, it is settled that parties may, by
contract, will, or deed of conveyance, create a common law joint
tenancy, with its accompanying incident of survivorship. Chandler
v. Kountze, 130 S.W. 2d 327.
The first question, then, is whether ar not a common law
joint tenancy has, in fact, been created in this case.
“In a joint tenancy there are said by Blackstone to be
four unities, to wit, unity of interest, unity of title, unity of time,
and unity of possession, or, in other words, joint tenants have
one and the same interest accruing by one and the same convey-
ance, commencing at one and the same time, and held by one and
the same undivided possession. Of these unities, only the unity
of possession exists in all forms of co-ownership.” Tiffany, Law
of Real Property, § 418. The joint tenants have together but one
estate which each joint tenant awns conjointly with the other co-
tenant. “Each joint tenant is regarded as the tenant of the whole
for purposes of tenure and survivorship, while for purposes of
alienation and forfeiture each has an undivided share only . / .
The leading characteristic of joint tenancy is the fact that, on
the death of one joint tenant, the other joint tenant or tenants who
may survive him, if it is an estate of inheritance, have the whole
estate. . . The survivor takes no new title by survivorship, but
holds under the deed by virtue of which he was originally seized
of the whole.” Tiffany, Law of Real Property, 58418, 419.
Hon. Geo. H. Sheppard, Page 4 (V-668)
The law is well settled that a joint tenancy may exist in
personal property. 11 Tex. Jur. 418. In the brief submitted by
the attorneys for the executor the various characteristics of a
joint tenancy are discussed in some detail, and much emphasis
is placed on the doctrine of survivorship as the distinguishing
incident of title by joint tenancy for the purpose of supporting
their contention that these policies were held in joint tenancy.
However, no mention is made of the fact that the destruction of
any one of the aforenamed unities results in a ‘severance” of
the joint tenancy. For example, if one of two joint tenants dis-
poses of his interest, the other joint tenant and the grantee be-
come tenants in common. Tiffany, Law of Real Property, g 425.
In other words “by its very nature a joint tenancy is always re-
vocable by conveyance at the option of either joint tenant.” Glea-
son and Otis, Inheritance Taxatian. We think that the assignment
of the Great Southern Life policy, the requests for change, and
the endorsements on the Aetna policies deny this option to the co-
tenants of these policies. The brief of the attorneys for the ex-
ecutor contains a copy of a letter dated April 14, 1948, from Mr.
D. P. Cavanaugh, a member of the Legal Department of the Aetna
Life Insurance Company, to Mr. E. A. Sibley, Trust Officer of the
Frost National Bank. We quote the following excerpt from this
letter:
“While John Frost II and Joseph Frost, Jr., were
both living we would not have allowed either of them
to take any action with respect to these policies ex-
cept by their joint action.”
This result is in line with Tiffany’s criticism of regarding a gift
to two or more persons and the survivor or survivors of them as
showing an intention to create a joint tenancy. The following quo-
tation is taken from Tiffany on Real Property, § 425:
”
. . . But whether the mere fact that the donor in-
dicates an intention that the survivor or survivors
shall take should be given such an effect appears to
be opento question. The right of survimrship is mere-
ly one incident of a joint tenancy. Another incident of
such tenancy is that any one of the tenants can destroy
it, with the incidental right of survivorship, by a con-
veyance to a third persan, and when one makes a gift
to two or more with the right of survivorship, it ap-
pears to be a reasonable canclusion that he has in
mind an indestructible right of survivorship. The
view that there is in such a case a tenancy in common
for life with a contingent remainder in favor of the
survivor, or even that there is a tenancy in common
in fee simple with an executory limitation in favor of
the survivor, might seem more in accord with the in-
tention of the grantor l r testator .”
.-
Hon. Gee. H. Sheppard, Page 5 (V-668)
Holding, as we do, that no joint tenancy existed in these
policies, it is not necessary to decide whether or not the privilege
of receiving the interest of a deceased joint tenant may be subject
to tax by virtue of the provisions of Article 7117, V.C.S. Nor in
the view we take of the language of that article is it necessary to
decide the exact nature of the interest of John H. Frost11 in these
policies. Article 7117 taxes “property . . . passing under a gen-
eral power of appointment exercised by the decedent by will. . .‘I
This provision is obviously inapplicable as is the provision re-
garding insurance “under policies taken out by the decedent upon
his own life.” (Emphasis added) Nor did the “property , . . pass
absomely or in trust by will or by the laws of descent and dis-
tribution, , .‘I The only provision, left is that which makes sub-
ject to tax transfers “by deed, grant, sale or gift made or intend-
ed to take effect in possession or enjoyment after the death of the
grantor or donor. . .” As to this provision, John Frost II was not
the “grantor or donor “‘of his interest but was, in fact, one of two
donees, who took his interest subject to the condition made by the
original donor, by virtue of which condition his interest ceased at
his death and passed to Joseph H. Frost, Jr,
We are therefore of the opinion that the receipt of John
H. Frost II’s interest in the six insurance policies was not accom-
plished by any of the methods of transfer enumerated in Article
7117, V.C.S. If the Legislature so desires, this type of transfer
could result in the imposition of inheritance taxes by the inclusion
in Article 7117 of a provision similar to that found in Section 811(e)
of the Federal Estate Tax Act, Ch. 3, Title 26, Internal Revenue
Code, U.S.C.A. This provision of the Federal Act applies to and
brings within the scope of the Act all classes of property whether
real or personal in case the survivor takes the entire interest
therein by right of survivorship, and no interest therein forms a
part of the decedent’s estate for purposes of administration. Reg.
105, Sec. 81.22; Paul, Federal Estate and Gift Taxation, Vol. 1. §
8.04, However, until some such provision is embodied in our law,
the receipt of a decedent’s interest which is accomplished in the
manner presented by the facts of this case escapes the provisions
of our Inheritance Tax Law; and no tax is due the State by reason
of the provisions of Ch. 5, Title 122, V.C.S.
SUMMARY
Where a third party makes a valid gift of insur-
ance policies on his own life to two persons *or sur-
vivor , ” neither co-owner having the right acting alone
to affect the interest of the other in the policies or
his right to take as survivor, no inheritance tax is
Hon. Geo. H. Sheppard, Page 6 (V-668)
levied by Article 7117, V.C.S., on the survivor’s
receipt of the deceased co-owner’s interest.
Yours very truly
ATTORNEYGENERALOF TEXAS
pJy
BL& (I?&!.&
Mrs. M&rietta Creel
Assistant
MC/JCP