NE NE
E
PRICE DANIEL
ATTOHNEY GENERA,.
Hon. Ciev. H. Sheppard
,State Comptroller of Public Accounts
Austin, Texas Opinion No. V-552
Re: Whether estate in real
Property conveyed by
deed expressly provid-
ing conveyance shall
take effect at death of
grantor is subject to
tax on grantor’s death.
Dear Sir:
You have sent us your complete file on the Estate of J.W.
Everman and the brief of the attorneys representing the estate.
.The file and brief apprise us of the following facts:
On or about May 10, 1929, J. W. Everman executed a deed
of conveyance of his homestead to his daughter, Marie Everman.
This deed was in the form of a general warranty deed except that
it contained the following protision:
“This conveyance shall take effect at the death
of the grantor herein, that is, this .cunveya~~cc shall
be construed as a conveyance and a deed vesting an
estate in praesenti to c cmmance in future upon the
death oft the grantor ~n
This provision appears following the description of the
property conveyed and immediately before the habcndum clause.
The deed was properly signed and acknowledged.
On or about May 10, 1929, J. W. Everman delivered the
deed to Marie Evsrman, who placed it in a safe deposit box held
in the nime of J. W. Everman and Marie Everman in a Dallas bank.
The deed was not recordcd~ until afte+ the death of J. W. Everman.
After the date of the conveyance, Marie Everman continued to live
with her father in the homestead until~ his death. Sarah Duke, a
lifelong friend of Miss Everman, l&d with them. During this pe-
riod both Miss Duke and Miss Everman sxpend?d’considerabls sums
of their gwn money on improving the property and on general upkeep,
,
Hon. Geo. Hi. Sheppard, Page 2 (V-552)
although Mr. Everman paid the taxes. Miss Everman, her sister
Mrs. Saville, and Miss Duke have stated that after delivery of the
deed Mr. Everman tcPld everyone that the house belonged to his
daughter Marie Everman.
The attorneys for the Everman estate contend that no in-
heritance taxes are due on the property so conveyed, basing this
contention on several propositions, the first being that the instru-
ment dated May 10, 1929, should be construed as a deed of convey-
ance and not as a will. With this contention we agree, and consider
that the instrument is so clearly operative as a deed of conveyance
that we will not discuss this aspect of the problem in detail. For a
discussion of the features which distinguish a valid conveyance of
an estate of freehold or inheritance to commence in future from a
testamentary instrument, see 14 Tex. Jur. pp. 755-759, p. 939, and
particularly Turner Y. Montgomery, Tex. Comm. App. 293 S.W. 817;
North v. North, 2 S.W. 2d 482; Texas Pac. Coal and Oil Go. v. Bruce,
2-33 s . w . 535 .
The second propobition is, in effect, that since the instru-
ment is operative as a deed, in view of its nature and the facts of
the case no inheritance tax is due the State of Texas under Article
7117, V.C.S.
The relevant provisions of Article 7117, V.C.S., are as fol-
lows:
“‘All property within the jurisdiction of this State,
real or personal, . D Dand any interest therein, ~ D 0
which shall pass absolutely or in trust by will or by
the laws of descent and distribution. 1 0 or by deed,
B,rant, sale, or gift made or intended to take efiect in
possession or enjoyment after the death of the grantor
or donor, shall, upon passmg . ~ . be SubJect to a tax
. o. [timphasls added)
The tax levied by the provisions of the above Article is a
“special tax,” Lewis Y. O’Hair, 130 S.W. 2d 379, imposed upon the
right to receive property or the right of succession as distinguished
from the right of transfer. State v. Hogg. 123 Tex. 568, 70 S.W. 2d
699, 12 S.W. 2d 593.
If a tax is due in the instant case, it is by virtue of the
phrase (underscored in the above quotation) which taxes the trans-
fer of property “‘by deed . . , made or intended to take effect in pos-
&ssion or enjoyment after the death of the grantor or donor. . .”
The attorneys for the Everman Estate argue that *after de-
livery of the deed of conveyance by MP~ Everman to Marie Everman,
Hon. Gee. H. Sheppard, Page 3 (V-552)
. . . Marie was not only vested with the fee simple title and, owner -
ship of the property, but she also had and continued to have, com-
plete and physical possession of the property, with the full acqui-
escence of her father, from May 10, 1929, until her father’s death
. , .; and that an inheritance tax is not due the State of Texas on
said property, as nothing passed to Marie after the death of the
granter. ”
It is therefore necessary to ascertain the extent of the
interest conveyed by the deed. As we have previously stated, the
deed was in the form of a general warranty deed, and, except for
the quoted provision relating to the time the conveyance was to
take effect, would have transferred an the date of its execution
and delivery a fee simple title and complete ownership of the home-
stead property to Miss Everman. However, the grantor specifically
provided that “this conveyance shall take effect at the death of the
grantor.”
At common law. “an estate in remainder expectant on the
death of the grantor may not be created. Now, by a remedial stat-
ute, am estate in land may be created by deed to commence in future.”
14 Tex. Jur. 883, This statute is carried as Article 1296, V.C.S., and
reads as follows:
“An estate or freehold or inheritance may be made
to cemmence in future, by deed or conveyance, in like
manner as by will.”
The authorities are to the effect that, strictly speaking, the
“statute. . . has reference to estates in expectancy other than estates
in reversion and remainder.” Glen,v. Halt et al, 229 S.W. 684, 687
and author ities,-cited therein. %y virtue .of its previsions “a *ted
may be se-& aan that-~ttrmrmxys the land as ~from the time of tke
death of tbc-(FmtPr; and unless an express reservation is made, or
an express condition is declared, that the land may be otherwise
disposed of by the grantor, the instrument is construed as being
operative in praesenti in the sense that it iS irrevocable.” 14 Tex.
Jur. 875. “The estate so crtated may be vested in the grantee either
absolutely or upon a contingency, and the grantor’s death may be des-
ignated as the time when the estate is to fall into possession. When
the time designated by the grantor has arrived and the contingency
(if any) has happened, a complete title, in the sense of a right to pre-
sent enjoyment of the estate, becomes vested in the grantee. Not-
withstanding, however, that the enjoyment of full title and possession
by the grantee is thus deferred, unless the right to make other dis-
position of the property has been reserved by the grantor, the grantee
is held to have a present vested interest.” 14 Tex. Jur. 883.
In the light of these authorities the language employed in the I
deed could not be freer from ambiguity nar mere specific. By its
Hon. Gee. H. Sheppard, Page 4 (V-552)
terms h&it Everman trek a presently vested interest in an es-
tate in fee simple which was “to cemmcncc in future upen the
deatk lf the grantor. * We are of the opinion that the legal effect
of the interest l r estate conveyed by this deed cannot be varied
by evidence outside its terms. . +fcCfrmick and gay, Tef~s L;w
of Evidence, g 739, and authorrtres cited theram. There re t e
information submitted which bears en what various parties thou ht
had been conveyed cannot be considered; ner dars the fact t&s
Everman. continued to live with her father and had, in that sense,
‘possession s,$td enjoyment” of the preptrty affect the extent of
her legal interest. Moreover, we do not see that the pessessien
and enjoyment of the property which Miss Everman had after the
deed was executed was particularly different from that which she
had previously enjoyed as daughter af the house. Xf an estate in
fee simple to commence in future upan the death \rf the granter is
within the provisions o$ Article 7117, an inheritance tax is due the
State of Texas on this property.
The Texas statute is net limited to gifts “intended to take
effect at death” (such statutes apparently only include gifts pes-
sessed by the donor at the time of his death, 49 A.L.R. g65), but
extends to transfers ‘“made er intended to take effect in pesscs-
sion o r enjo y m e nt a t l r after death.” In states having similar
provisions the “courts have consistently taken the view that res-
ervation by the transferor of the beneficial interest during his
life in property transferred inter vives operates to render the
transfer one intended te take effect in possession l r enjoyment
at death witbin the meaning of applicable estate or inheritance
tax statutes.” 159 A.L.R. 244, and authbrities cited therein. The
courts have variously phrased’but uniformly annouwced that the
“very purpose ef L provision in an inheritance tax law imposing
a tax on transfers intended ,to takes eftect in possession•r enjay-
ment at or after death is to establish a bar to frequent attempts
to transmit estates to beneficiaries, unimpaired by the payment
of inheritance taxes, by means of trusts or canveyances where-
by the grantor reserves the beneficial enjoyment of the property
during his life. ” 49 A.L.X* 901. In mast of the cases we have ex-
amined the grantor has expressly reserved P life estate, l r has
created a trust reserving life income ta the settler, l r b,as made
an absolute conveyance ts the grantee but by separate agreement
secured payment from the grantee in an lm,ount preximrtin the
income which might be anticipated to accrue during his life t lone.
However, even if there is a technical difference between these
cases and the conveyance here used, certain it is that Miss Ev-
erman came into complete legal title and the accompanying lsgal
right to possession and enjoyment of the property only at the death
of the grantor. Pt is the privilege of the receipt of such rights at,
death which the statute specifically makes subject to tax; and the
courts will look through devices of the conveyancer ,where there
. .
Hon. Geo. H. Sheppard, Page 5 (V-552)
is an actual shifting of economic benefit. Saltonstall Y. Saltonstall,
276 U.S. 260, 72 L. ed., 565, 48 Sup. Ct. Rep;, Moreover, we
think that in holding this property taxable we are in line with the
interpretation given Article 7117 by the Texas Court of Civil Ap-
peals in Bethea v. Sheppard, 143 S.W. 2d 997, writ refused. In
that case the question of taxability turned on whether certain prop-
erties embraced wit@ a trust estate were transfers intended to
take effect in posses&ion and enfoyment at the death of the settlor.
The Court said:
“It is not a question of when the beneficial in-
terest is created, but the tax is imposed upon the
right to receive in possession or enjoyment after
the death of grantor or settler. In consequence, a
grantor or settlor may create an irrevocable trust
during his lifetime, still if he postpones the right
of possession or enjoyment of the beneficiary until
after grantor’s death, the property or any interest
therein is subject to the inheritance or succession
tax at or after his death. Under our statute, where
either ‘possession’ or ‘enjoyment’ is made contin-
gent upon the death of grantor or settlor of all or
any part of the trust estate, such transfer is tara-
ble. . .”
We come now to a consideration of the third proposition
proposed by the attorneys for the Everman Estate. We quote from
the submitted brief:
“The 5. W. Everman Estate contends that if
Marie Everman, at the tim~e of the delivery of the
deed of conveyance executed by J. W. Everman to
Marie Everman, was vested with a fee simple title
to the property subject to a contingency or life es-
tate in J. W. Everman, as contended by the examin-
er, then Marie Everman was vested with a much
greater interest in the property than J. W. Everman,
since Marie Everman heretofore possessed the title
and ownership, together with the then enjbyment and
possession of the property, and J. W. Everman had
only a contingent interest or a life estate; which
property had been maintained, repaired and kept
improved by Marie Everman and Sara Duke, with
the result that the alleged contingent interest or
life estate reserved by J. W. Everman amounted
to a very small interest in the property.
“Since Marie Everman had by far the greater
of the two estates or interests in the property, then
Hon. Geo. H. Sheppard, Page 6 (V-552)
the tax due the State ef Texas by the estate, lr by
the recipient of the property, at J. W. Everman’s
death, could be only that amount assessed against
the interest reserved by J. W. Everman in the ekcy
af conveyance, . . .I’
The argument is alse made that this measure rd taxabil4
ity must result in view rf the fact that Miss Everman’s interest
was a vested lne prior to the death of the grantor since the tax
is on the “right to receive as distinpuished from the right Uf
transfer.” In Reish v. Corn., 106 Pa. 521 the deccQent had 8xea
cuted a deed l m his property to his brother who saw a Iran&
conditioned on paying the income from such property to the
pantor for life. A tax was imposed on the full value d the pr@p*
erty, and it was contended that this was error since the decedent
was not seised and possessed of the property cevered by tha deed
within the meaning of the applicable act, which crntainal a previa
sion covering transfers intended to take effect at death that was,
in effect, t he exact previsien found in Article 7117. The Caurt
said:
“The vice of the argument. . . is in assuming
that in order to charge an estate, transferred by
deed., with an inheritance tax, the grantor must, at
tht time of his death, have same title l r estate re-
maining, and that such title a+ estate only as the
granter actually owns, at death, is subject to the
tax. A very lobered and ing+ous argument is
made to show that @eccdenJ/ did net die seised
or possessed of any estate, excepting the bend an&
the right it secured; that these only shauld have
been appraised. . . The letter as well as the spirit,
and meaning of the act, however, is clear, When an
estate is transferred by deed. ~ . intended, however,
to take effect in enjoyment at the death of the grantor,
it is the value of the lands se transferred which is
liable to the duty, not the value sf the interest er
part remaining.”
We are in accord with the views as above expressed and
hold that in computing the inheritan~ce taxes due the SLttc this cs~-
tate in fee simple, which came into possession and enjoyment It
Mr. Everman’s death, should be valued as an estate in fee simple.
We de not mean to say that the amounts expended by Miss Duke abd
Miss Everman have no bearing on the amount lf the ta% which will
ultimately be paid; This question was net specifically pradenttd,
and we therefore have not considered it.
Hon. Geo. H, Sheppard, Page 7 (V-552)
SUMMARY
Where deed conveyed an estate in fee simple to
take effect in futuro upon the death of the grantor, said
estate is subject to inheritance tax under Article 7117,
V.C.S., as property passing by deed to take effect in
possession or enjoyment after the death of the grantor;
ad the value of the interest received is the value of the
estate in fee alimple rather than the value of the grantor’s
retained interest.
Yours very truly
ATTORNEYGENERALOFTEXAS
Mrs. Marietta Creel
Assistant
MC/JCP
APPROVED:
TORNEYGENERAL
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