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OFFICE OF THE ATTORNEY GENERAL OF TEXAS
AUSTIN
Deer sir:
.
Wo
are In rooolpt of 0-u actor of ii0v':k
u I 6,
1941, In bhloh you rocgast tl 01,.io oi this department
na to the Epolication of tb TQ f3sXha ifauoo TQX Law to
the ?&tete 02 ViXllkm Gil art Svi ,,. ,~~akL. ;_
d?ii??’
Divins OzcOutod~
&id trust'nae to
trustee:WED to rmn-
a son of the trwteo,
the trust property
of the trust prop-
the p~o~mrty was to
Tot3trii~tagroo-
.
oonkirma o&2Inistrationof this trust for tho i
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Honorable George I& Sheppard, Page 2
$@I tern!spacifiod herein, but ehould.thamid
Villim Gilbert 3ivins die intcs?A.o~and'laava~
a wldoivor child or ohildre3, tber;meld trust
properties shall vost in,his la:$il hcifa~accor+
$ng to.ti:ala\;- of descent and distribution.iti .:
!Iaxas,subject tG the co~tinuaC's&inietration.,of
thls'trust for the full tam specifiedherelhf .-
should the said %lll~ Gilbert.Bloina, art’er.
~.’ attaining his mjorlty, execute his lant irill’ ai .” : :
%este33ent,(ozG the'said 'iiilliaai Gil>art i3iViriS" .,.~
shall ufter:attaininghis mjority, hava full'.
. xi&t, pozer iii&crut!iority to dis@,ijse'of 'the'
trust propoztlas.byv~ill, subjaat to the oon-
Sinued .a~~z&~iatration of the tru$t'estete‘.for
$$a tom .hczainspcoified) devisi&-tie tr’ust
propqxtie,-,haroin,raferraCto, aha thax~ftar
-die.priortomtho expiration of tbit:trwt, then
..a11 'such.t.r.ust propertics hala by’ the’'%ustde '
.um?ar4his agramant shall vast in.suoh &avisoas
nnd benefiqiaries,subjeot to tha cotittiusa aa-
.plnistra~ionc$ thi.strust for the .ful.l'.tern
.?~pa.cl.f.iel
hcxqiq. .. ‘,.
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!ihe-said~i?illie~Gilbert E)ivinsdied &-Xay 23,
‘1440 cfter .havingobtainad tha age of -&w&y-ona‘yfars,’
lea?& a .will.whioh. provides in paxt,~a~~folI~t+~~e~.
.. in.; *, ... ..
.
-%3UXXD:~I give, .daoiseand:beGuesth.uzto.
sty-6r6ther..GLITST: TiILSC?T
BITETS'andtis-sister.‘
'b~Rk.~I~,~~:BI-~~:Stshara and shaS3 aliEe,~'all
6f
&y-proparty:of.e+erykind lendoh&actor/ ~esl~
-personalfor-otherwisean8 ~~hal~tler(sitrlatch,:of
$hi.ch:I.nay .~ia.saizadend possessod,]fo be their.
co~wproparty', .aavisingthe mm8 to.,thm without
~apy',.cans.t.raint
.or suggestion, to ~$a'hal~;~
mnaf;ed,,
mtalncd, :sold,.disposcdof,': or o,tb~eer~~:if+.~use;
.'
:as.thoiti~OT~I
goo& juogaent'tlay diot&ta.
t
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-Tha.p,rohlmOf f@SsGGing the %x?S inbd,t6IKo tax
to a oasa as present& hore,has never been passed od by tho
oourts of this.State. Eere tha graator gave to the doccaant
the poser of appointrzent over oartain trust proportisa. ii
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Eonorable,GeorzeH. Sheppard, Paso 3
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the aeoodcnt inlled to exercise said power then tiuiiier
the
original tru3t~aSreeE?ontthe proporty~wasto pass to Gllvor ..
Wilson Blvius an& Xary L:ilosDivlno. Rowever, the decedent
left a will in which h3,aevised nll,of his property of every
-2.
...klnBwhatsoever to the s8ee indivi8ual3,Gllvs~,\‘UsonBiv&ns
.. and.,&yy Elles Rivlne.
Artiole 7117.of’thoRevised Givii~Statutes reaas
in pak aa folloWs: .
.,. .. . :. .,
“All property within the jurisalctionof
this Stats, reel pr p?orsondl.,
aorpozateOi In-
corporat3,and any interest there+ InoluCilng
property passinS mdor a Senoral pmcr of ap-
pointmnt exerclsetl by the deoedent bywlU.,
. which shall-pass absolutely or in.trust
iy*wlll or by the laws of aoscont or Qistrlbu-
tlon of this or auy other-State, ; . . shall:, . ‘..
upon p~eslrS.to 02 for the use OS any Person,
corporat$n, or association, be subjoat to a
. tax fok‘tho benefit of the State’s General Rev-
., .. enue Fund,,In accor&ume with the io~lc~$~.~ _*
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‘-~classiflcatlon. . .R _...
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Qf”cour3emkthe abovo*quotobprovkloi-‘of‘I;he
will of the dec-3&M is aonstruoa so as to tiotbo an eser-
ciao of the power.of appointmat granted hiz~‘hythe donor .
but..tilncluae only the said decedent% other property, then
the;propcrtyin trust paaaes to the saia Oliver Hlson Rlvins
ahd Kary Eiles Elvins under the to&s- of tho irrevoctible
trust anQ 20 tax woula~bo due on the acatbof. the.decedenL
“~l:aagfacts as to the testator’s intent would.have‘ta’bo‘t&eh
Into oon3laemtlon to .doter,-lmwhether.or:uot~he&HmiIed
that his will should be au exercise oi the powor of ep.polnt-
nent gr&ed him.
..
Eowever, a&me that the salC deccaoift&ki ‘emr-
oise said pc-mr of eppol?ltnentin his will a,?dthat he oppolnt-
cd Oliver Wilson Rivino a& iIaryLY,lcsB.vins, the :3m3 IU-
dividualawho woul? have xeoelved:‘the pkopertyhnd :he.feiled
to oxercinc the pom2. The question then Is would the Texas
lrLl3ritanco tax, iiriiolo7117, supra, whkch taxes property
‘paosinS.upouthe exercise of a power of appolntnez~t by will
.applyunaer the oircuxst3ucesof this csna? .~
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Honorable diorza HI,Sheppard,P3ge 4
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Me belleve‘thstthe anmor to this questlo is
controlledby.~thacase of Arnold v. Southern Pine Lumbar
co., 133 a. x. 917. In that (l3a3pzo?azty m13 deeded to
.a hu3bimd in trust foslhis wife for life nod Shax+s granted
the,pouer of rtp;olnt3anteither by deed or alll. In.the
eveat ~38 did not exercise said po~os the pro@erty viesto
pass to her cblldzen.,.she left a wlIl In which,she left
aU. of her property to her children. It was contondcd that
'by seld will the deoedeut hod erazclsed ths peer of appoint-
ment end t&t the ohllaren too4 the progsrty fro,?:her Sub-
jeot to the dcbts'~ofher estate. The court overruled thle
oOotaIktiO?l
Md St&Cd aE fOIlOV3: .
.
.q.’ yj. XeUsee Ties given no prororty lntar-
est in the lend,-but V&S mroly ths dei;osltary
of the nsked.leseltitle, holding it in trust for :._.
the real owners of the benofiaial intereot..
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*(5).For'uhsn, then, was he hol~ln~.t.hat
which remlued after the tsrr&uStiou of the life
cstate of his rulfe? ~vldently for the children, .? _.
or xhousoever she z&&t Sppoint. Those who tight
take by the eppolntzantwere not-then eaeaoeptlble
of aacertslrment,car do&d they be %ill the ,.-.
power m3~axecutea. %6 ~ri~htwhich W&E. to aolte
into eris+ce Upon tne8ggoistmIztbeI= mile '.
: 8188;t&erefore,so.contlr~~ent and uucsrteln~that
it did not ri‘ttaln
to the.dignity ck"en .astzte. ..
h-encethe olllybatieflclaIInterest comeyaa by,'
the'&ed beyond th,elife estatesof Lirg.Sillaoe ;'
xqa3that 'conferradupon the children. Tney then
had a oxsentrldht 'o? futura cnjoyxakt, subject
to be u-o& bytt;?eemsution of the r,cxrerby ...'
I::rs.
?iallz?-%e contlwcncy r;hichconironted. ..
then was oaa which eli;htdcfeot ~3 e;ristlnSright,
‘ikaer
not-one upon vihlchIts origin x%uId de3ca.d. :
the 8uthoritiosreferred to upon tha forner ey-
pesl this conti2ssncydid not prevent the rami+
der fron bacozlng a vest@. one. Set &xold -L So.
Fine Lbr. Co., I23 3. 1:.lI.G.2,
nnd.caaas @zara :
CitGd.~ ., ._
Honorable George E. khoppard, Page.5
. .
by virtue of'their orlRlnal title. birs..ITallace
could not t&e augthing Sroz their intcrestac-
qUi%d under ths deed, exospt by appointing so100
other person to the estate, .'.'. .;
.
"The lntdxest whioh one his in an estate
.'is neasureo'by the'older and better title."
(Undersoorl~ ylrs)
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Apply& the holding of the oourt to 'thefacts
in our cam Oliver Kllson Elvins sod hkry i!ilcs3lvins
orlglnallywere given a vested remainder In the property
. subject to being defeated by the decedent having passed
the property to a thlrd.partyby the exercise of the power
of appointment. ibis he did not do. Therefore ‘tlxprop-
erty in this case~passed under the terms of thv.trmt agrae-
Inent. The question arises, however, 'whether'ornot the.
s8me is taxable ufder the wortlingof our tax statute, supra,
due to the fact that the power of appoliltmntwas,exercloed,
as we assumd, and the property passed to.Oliver Zllson
Blvlns and lktry Xlles Elvins because the deoadert did not .
-appointa third party. This point was passed on by thr
: 5ldrd Circuit Court of Appeals in the case oS.Wear v. Ckm-
-.-misslonor of Internal Revenue, 65 .Te& (;iG)665. ‘me Fed- .-
eral Lot elso~tsxes'npropertypassing under 'age&ral power
OS appofntient exercised by the decedeot by valll.'...n
The court stated as follows:_~ _, _, .,' i
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Vhat'question is predictted on the law of
'Pennsylvaniathat, 'IS the douse of the power *
exorcise it lu such a tuner that the property
pusses exactly as It would have passed .lSthe
povierhad not been exercised,the property will
be treated as passing under the w-sillof the donor.'
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Vhf3 real .question,ai we venture to 'putit,
ia whether the exeroise of a g,cne$Lpo:?-ercf ap-
pointment ia a la&ul subject OS Sedersl-taxe-
tion, to be neasuredlby t.he.v&e OS property vinioh
under state la;ipasses. ii?':iu:thkcase,not from
the decedcut donee OS the power but froratho donor.
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930 subject of the tax In this case ~1s the
exercise of a general power of appointnent;'The
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Honorible George 8. Sheppard, Page 6
tax 1s not on tha property OS the pmer dut 1s
on the exercise oS tho pv.?er1tselS. , ,
*An&, further the Congress has, ln some
situations,powr 40 tax transmlsslonof prop?-
erty etfeoted by death even the@ by the'fau
of tho decedent's domicile such property lo not
part of his estate. Fidolity&h;i.ladclphle Trust
Co. v. lZcCau#n (C.C.A.) 34 F, !2d) SOP, @2?
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'We .have not been convinced .thaton the
aeath of .theQonee nothing happened lp rospeot
to the 'property of the povfer~8. ln xespeot to
the daughters' right to the property by the ex-
erolse of the po??er. Eefore Its exercise t.he
daughters OS tho deoedent, the twice pamed ze.-
olplents, had under ~Pennsylvania :Jq:f an e3tat.e
in the property'of the povfer. But~:it was a de.-
Seaslbls estate.,not unlike the interest of a -.
-beneSlolary fn a polloy of l$.S $rm&ice .vi&e.re
the insured .has:xescrved, yet has not exerolse$
the right to ohange the bencSi.clary,,melx
estate was liable ~tobe whol1.ytake.navzy $roG
them by the exe~rolseof the power in J?a~?r. pf
others. So long as -the don69 :livcd and retains8
oontrol.over ,thedispositionSp t.pe.propqrty.$he
aaughtars ran -that:xisk,vihlchpas akin -to-the
risk of a change OS beneflolax-J.es -ina .polloyof
,: insurQnco..rot until the donee .disddid ~that
ri3% disappear..%Jntil then he :stood:lntheir
3VQY..Tharofore :ltwas upon his .death -v$thdut
exercising the .poVwer adverse to ~them@at. ..the
estate of the daughters becme :lndoSeasible.. *...
And such a .tnzc, we :hold, the -fe,deralgovqrnmqnt,
under its sovereign poivcr to -levyta,ses, .may:lfliF
fnl1.yimpose upon the exercise-oz,.a .p.Wer.ec&,ect-
Ing such a change.,.. ,...(I i ;~
Under the reasoning of the above case ,the.Texas
inheritancetax would be due untierthenfaots you present.
Honorable George E. Sheppard, Pa&6 7
However, the Point was again passed on. The second Circuit
Court of Appeals in the ease OS Grlunell Y. CorzissiouerOS
Internal Pevenue, 70 Fad. (26) 705, held ccztra to the U&r
ease, supra, The oourt held that as the proplortydid not"'
pass upon the exercise of the povler.dSappointmnt but’xather
passed under the will of the orlg.inaldonor t.hesaci9was pot
-taxableas Property passin% under a general pomr of %appoi,ut-.
msnt excroised oy the,decedentby will.” (Underscoringourr)
Eecauso of the confliot In the t%:oabove mentioned
Fedora1 cases the Supreme Court OS the United States granted
*awrit of certiorari. See Fielvcringv. Grinnell,234 Up .S,
153, 79 I,.XX. 825. The oourt Btatatia3 So1lo~s.:
*(Thecrucial words arc ‘property,pdssin~ .~.
under a general power 0S appointment exercised
by the daoedcnt by will;* Analysis of this c1.ause”
discloses three distinct requisites--(l)-theox-
lstenoe ai a goneral pwlar of appolntnsnt; (2) .an .
exercise of that povrarby the decetlentby.will;
and (3) the passing OS the property in’virtuo of
ouch exercise. Clearly, the 6enersl pzvar-existed
and was exercised;and this Is notdisputed; Eut
it is equally clear that no property passed under
the powor or as a result of Its ersxciso since
that result was defiaite$y rejected by.the.bcne-
Slciaries. . .
Yi’egranted the writ of certiorariin.~thi’s’
case because oS~an.e.l.le.~ad
conS1ict aith,Uear.~y.
: Commissionerof ‘InternalRevenue [C..C.h.‘3d).65:P.
(2d) 665, and Leev, CommissioneroS.Intcmal:E6v-
enu6, 61 ‘App.D. C. 33, 57 F. (2d) 39~9.~~The.rea-~
soning and,oonclusionsof those oourts and.of’the-.
ocurt below cannot bs.re’conclled..%e are:of-.tho ..
opinion that, to the extent of the conflict;the
view of the former is wrong and that ,oS..the.oourt-
below Is right, cod we hold accordingly.” ~,..
‘Under the abo-~0holding OS the Su:rene,6ourtoS
the United States ani¶the othor.authorit,iescitedherein,
It is our opinion that ,the,propurtypassing to Oliver Wilson
Bivins and Kary Eiles Bivino passefiunderthe trust agree-
ment and IS not subjeot to the Texas Inheritancetax.upon ~,
,.the death of ths decedent, Y;illitin
Gilbert Zivins.. ”
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Honorable qeorgs IL Sheppard,Page 8
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We trtistthat the forogolng is suffiaientto en-
/ lighten you in this matter. I
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