Untitled Texas Attorney General Opinion

‘, IYS OFFICE OF THE A~ORNEY CWNERAL OF TEXAS AUSTIN gonon @8oPga a. aheppard Corrptrol1.l. of ?ublio Aooountr lrtutln 11, TOxaB mr air1 opinion lo. o-6641 Ret Inolu8ion for lnherltarroe tax nquert I8 oocarIot¶ed by 8 oontrovo the attortter for the fnto1v.d orkt thereto 8 latter Troll the 8tt latter inn Jolw rupre8entatl la ent 88to. th efa c t*. o n7 0 fo r th ebatefit 0 th o nlnth 8 p r tvl b enefIo I8r tqler th a otfo th o n. indup 8ttd di8- h pM'ti.8). di8- dlmoted that ould ulnd up and dirtrihuts On April 15, 1929, the de- t arationed and inrtructed fir8t and b8t” distribution to hIa five th811- entln Interest In the trust. Such led out, and the~reafter the vlfs remained of the tX'U8t. -The decedent died on Decem- the property plaoed in the tN8t Ya8 at for oommunIt~ pnportJ. line dlsagmomnt as to the inOlu8iOn for inheritance tax purpose in decedent@o gross ertate of the fund8 remaining in the truot arlroa under Article 7117, V. A. C. 3., the pertl- nent part of vhlch is quotedr . ~1!30 moreble Oeorge H. Sheppard, page 2 "All p.FOpOetJ Within the ju?i8diotiott Of thI8 -btate, ml or penon , oorporste or lnoorporate, '~ ili&'~kfintik'tt~t thO?dil, ittOlUdillg p?OpO?t~ p8- -“sitt& UTtdU l ~ tte?aPlOW?OflppOtibUlt UUOi8ed by the dewdent br ~111, inoluding the p?OOUd8 of life in8Ulmae'tO the Utent Of th. -0Ultt lWOeiV8- ble br thoiexeoutor o r lhlnlstrator a8 ln8uxwioo @or pOliOiO8'~ taken out by the dooedont won hi8 ovn life, and ‘to the lxteat of tbo uoe8s over Fort.7 mousukd b13AF8 (~~0,000) Of th. -t noel~ble br ail OthW knefiOude8 a8 itM?UtOe UDdO? PO& 01.8 taken out by the decedent upon hI8 own life, vhother belwias t0 -8ihnt8 Of thi8 Stat0 Or to penons who are not Inhabitits, regmdl.88 of vhether 8uOh property I8 lowted rlthia Or rithout this Mate, wbloh 8h11 #88 lbrOlUuk1Y Or in tNSt .br Win OP-bJ th. hV8 03 d.80~TV Or ai8t+Ation of this or ear othor Mate, or by deed. gtwnt. rale, or gift rdo or intended to V 81oII O?lnjOWnt after the duth Of th@ MtOl' Or a-O?, 8bii, UpOa p888uIg LO O? rO? th0 \UO Of w p O?SO&OO~O~tiOn, 0, l88OOirtiO& b8 8UbhOt t0 b tu for the 89ttesit 0f th8 8kteG h0-i ~k~enue p Ull& in lO, O~?d& lfith ttO O the fOl.lOVing OlB88ifiCt&- . . . . (hpb818 UidOd) ?h 0lttO?tiO7 fO? th0 08-k OOtthtd8 uUt iIt O?dO? iO? 8' ttWtSrO? to 0~8titUtO 0110mad. or latondod to take Offoot In pOSSe8SiOZi or enjoyment after the death of tbo grultor or donor, vlthin the m8nIa# OS the above-quoted Artlole, it 18 neoessar7 tbat on. ,of the folloving oondItIons must obklnt ‘(1) The @Unto? Or 8OttlOr m8t hVe nsenod 8a inOolP0 fraP the traas- ferred property for his or her life so that the tXUtI8fer Is not complete until donor’s dsathj or (2j The rights of the benefi- ciaries must be oontlngent uponstheir surviving the &a&or or settlor of the trust, ln vhlch case It Is the death OS the grantor or settler vhlch fixes the rights to take or rucoeed to the trust estate.’ Further, the attorner argue-t the mere fact that VI- der the terms of the trust the trustee oannot be required to dls- tribute to a beneficiary all, or part, of the trust corpus until a date subsequent to donor’s death vhere the rights of the bene- ficiary are fixed and definite” does not operate to oonvert a transfer to a trustee othervise completed In all respects prior to dOnOr'8 death into one made or intended to take effect after the death .of the donor. gonomble Oeorge 11. Sheppard, page 3 1 Ott the other band, the repnsentatlve of the Comptroller’s prpmtmnt contend8 that the f8ot that the vlfe’r rights had be- owe fixed and definite I8 not the d8018Iv8 qUe8tIOn but that the fact that pe88O88Im and l njOm8nt VOl’e vlthhald Utltil the hus- b8ud’s death or that th8 husbrupd’8 death va8 the event vhloh gave the Vii8 ~8SO88itX Uld -jOJneZbt rhould ~OvOm. It ha8 ken noted that In,8upport of his pro~orltlon tbrt the right8 of the vii0 becae rmd end deflnlto nth droe- dent’s exerclee of th8 above-mentioned privilege, the attorney oltes the as88 of I. P. Bumey t8. ConI8slon*r of Internal Rev- enue (4 t. C. 449). & thi8 ?8gUd, It MT g?UttOd th8t hr?@ 88 th8 tN8t in Question Va8 Irrerooeble. Although tbI8 18 a mate- rlA1 oon8lderatUm under the Fedeml x8tate Tax frv (Tit10 26, II. 5. C. A., 36 811 (d)), it 18 not lmportut in d8termlnky the l pplIaabIlIt~ of the %x&r 8bhIt8 (808 ini’m). Fhe lwdlag judloial lnterpnt8tIon of the above-quoted Statute lS it 8ppiIOS t0 the fact8 in ttl. i.MtUlt -88 VO8 b the Court of CIvIl Appeals of Austin in Bethea t8. ISheppard t 143 S. Y. (26) 997~-ernr refued) . FrCn thi8 OpfniOtt th 0lttOITLOJ has quoted, but not fully. In thla aas8 the Court, dnvlng from the deolslons of other 8tatos, prescriber a test for taxability under the 8trtUt*, dOtin88 “pO88O88iO11 Of l ZhnjO~llt", 8tit88 th8 dlstlnctloa betveen the Federal tstate tsr kv and the Texas Rat- ute, and treats specifically vlth an Irrevocable trust. Contrary to the lttomey’r 0aMentIon that tbls oa8e I8 Inapp~Ioable here, the foll~ving a of the Court I8 demed partloularl7 pertl- nentt ‘And In R. blhttder'8 z8trt0, 123 1.J. 7.&2, 195 A. 805, 808, the oourt rtate8 generrllyt test of taxablllt~ 1s not the time of the ccaplete divesting of the transferor’s interest or ovnershlp; it is the the of the complete succession by the transferee. Where there is -a transfer of a speoiflc interest In property and the succession of the tmns- feree does not become, and under the tenas of the tmnsfer is not to become, cunplete until a time at or after the death of the tmnsferor, that transfer Is taxable. “The distinction l l l rests on l l l whether the done8 Is deprived OF an Interest of 8-e kind l l l until the donor'8 death.“’ Bonorable Oeorge II. Sheppard, page 4 “see, also, ?eople v. Hoses, 363 Ill. 423, 2 I.E. 24 724; In m toy’s Estate, 220 Iova 825, 263 1.U. 5Oli and Xi~ball v. rotter, 89 1.E. 234, 196 A. 272, 274, vherein the oourt rtates that 'the DOS- 8888iOtt O? ltt~OYEOnt, Vithin the 8t8ttttOrt IOaniqg, 18 8UOh lS 18 lOtUa1 and l'U1. urd not 8UOh (L8 iS ?iheontIoal or defemd.r d that th tax was to ho assessed on the value OFthe prop& at the death of the dooedent. "Me do not regard a8 neoe8ur~ a 1engthJ dlr- owslon of the dirtinotion recognir8d by the authorl- ties betveen the Seders1 estate tax and the Inherl- tame or sucoesslon tax levied by the various states. ~Suffloe It to ur that the fedenl ertate tax Is im- .~ pored upon the right of grantor of tnnsferror to tranrfor property, and that the Inherltuoe or suo- .. oesslon tax by th8 state is impaled upon the right to noelve or rucoeed to tho pO88888ia or enjoyment' " -: of property. HO? 18 it lWO8888~ t0 dbOU88 the OO& fllct of luthoritier vlth respect to the distinction as to these tvo foms of taxe8. und8r the Fedora1 Estate Tax IAV, the primary question to detemlne is vhen the decedent or gmntor parted vlth all property rights. Under our State Inherltutce or Sucoesslon Tax Statute, the priasry question 18 yhether the transfer vas mado or Intended to take effeot in po8- session o r l njoment after th8 death of grantor or settlor, particularly in ca8es of transf8r of prop- erty in trout. It 18 not a quertlon of vhen the heneflclal interest 1s created. but tb8 tax Is fm- posed upon the rkht to receive in Dossesslon O’Iw joyment after the death of -xrantor or settler. consequence, a grantor or settlor may create an Ir- revocable trust durinn his lifetime. rtlll if he pO8tDOneS the ritit of DonS8SSion or 8n~Osault of -the beneflclarr y$&ll after UU&O~‘s death. the joyment’ Is made contingent upon the death of grantor or settlor of all or any part of the trust estate, such transfer is taxable. . . ~.” (lhnphas1s added) It 1s not deemed necessary to elaborate on the appllca- bllity of the above-quoted portion of the Court’s opinion to the facts in the present case. It may be here noted, hovever, that .. 133 &,oorable George 8. Sheppard, page 5 8, the terns Of the tntrt the tramfor va8 one %ade or latexxled to ta&e rffeot la possession or enjoyment* at the election of the #8ttlor. Of the tvo 8lteraatIver rrallable to hti, either (1) of ~qulrlng the trust to be dfrtrlbvted In vhole or in part vhlle living Or (2) Of $08tpOIhiry it8 dirtribution Until lftu hi8 death, the decedent chose the latter. Hi8 death Va8 the avant vhloh @ye tie vlfe the “aotwl uad real” porr4rrlon or lnjomnt rufflclent to brlag the property vlthln the moope of Artielo 7117, V. A, C. 8. Aooordingl~, rou are adYI88d that it 18 the opinion of thi8 0rfi00 that 0ru-haof the yalue of the trwt a8 of the date ef the death of the deoedoat 18 able under tin Iaharltutoe Tax Z&V8 Of wXa8. Tours very truly ATTORBXY a OF TXA3