I
OFF~C~OFTHEA'ITOENEY OENE&!U.OFTEXAE
omov=mSLLLLII AUmN
+-n*eroc;..rr
HonorableGeorge Si.Sheppard
Comptrollerof Public AccountE
Austin, Texas
DearStir
opinion Ho. O-7&95
Re: Liabilityfor inheritance
tax on Series E. United
States Government Bonds
and on benefits fron a
Teacher RettiemeM Fund.
Your letter of Rovember13, 1946, addressedto this depart-
ment, reads as follovm:
"The Inheritancetax report for the Estate of
Lul,aAmos Eelton deceased,of TarrantCounty,
has been filed ath this Department,and in the
examinationof this reportwe find that Er. Robert
?I.R&land of Fort'dorth,the attorneyin this
case has excluded from the value of the.gross
es& some Series E. United States Government
bond6 and's Teacher Retlrernent fund. Both of them
c'item were yable at death to Mary Blisabeth
Barker, a nrwe.
"ThisDe tnent has includedthis type of
asset since tre bonda were l.asuedand the enactment
of the'TeacherRetirementbenefit, The bonds have
been included for tax pqoses becausethe og~~ggion
and enjo nt did not become effectiveunts
The Teatrer Retirementfund has no eleraent of pro&t-
Ion and thereforecould not be consideredas %nsurance.
5;ehold this fund to be merely a cash deposit built
u;,by the decedent duriry her lifetimeand Whatever
wount remslined In said fund upon the date of death of
&s, Xelton passes to Wry ElieabethBarker and is sub-
ject to a tax thereon.
rf$.ttached
yox:will find a brief &mitted by tk.
supportinghis views with respect to the
RoyilaAd,
exckisionof these item for tax purposes,for your
282
Hon. George U. She?pard- Page 2
UBO in advisirp;
thla Dogartuenton the questionin oon-
troversp .*
Article 7ll7, R. S., providesin part as follows:
*AU propert . and any interesttherein
inaludingt.ie**Lm3d8 of life insuranoeto the
&&xk of the amunt receivableby the executoror
a&&xLstrator . i + and to the extent of the excess
over $I+O,ooOof the amuht receivableby all other
bezefieiasiesas insiiaxe. , . v&&h shall pass
absolutelyor in trust by #ill or by the laws,of '
desce& or-distribution of this or any other state,
or by deed, grant, sale, or gift made or intmdod to
take effect in possessionor urjoymantafter the
death of the grantor or dono?, shall, upon eing
to or for the use of any person . , . be sugas
ject to
atax..."
On the Govorment bonds 2ssuet1:~.Rowland'sbrief relies
stronglyon .theSupreiee Court case of Eods v. ~itchall,184 S.15.26
&&~JudgaSmsdley. That case held that in a conterstover omer-
tHeen the estate of the deceasedGovernsmt bond owner and the
death benefici named irrthe bond the latter shouldprevail. The
Cimrt reasonedYx at the death benefkary aowiredi at the the the
bond% wore purchased,a present thou&h defeasible, interest fn then
by virtue of the coatractmade tor her benefit and that her rQhts
did not arise by gift or devise. The Court conparedthe situationof
the parties to that of partiesto an insurance ucy. &Zz.Rodland
urges that since this oame holds that the benefE"
ciary in the @m&8
doea not take by gift or devise,but ratherby 8 contractfor her
benefit,thereforetinebonds are.nottaxable as proser"ty under Article
7117, sip-a.
/ The Snheritaucotax Issue nas not under review ix~that case,
and hence we do not regard the decisionas conclusiveof the issue
bsfom u3.
The cam of sethoe.v. Sheppard,143 T. K. 2C:997, error
m+ed, contaim la3~~a~epersuasiveof an oppositeconclusionfrom
t.& one reachedby Kr. L?o~km.?, althoughthat caaa like\xiseis not
sqmrely in pozl.nt. Th.6Court, in passL; u.Wn the tzmA3ilit-~
of a.n
irrc-vocabletrust vesting iro2ert.yin a trusteewith 8 life hx% in
the sractoi*and the remtinderto a beneficiary,stated:
.
Hon. George II,Sheppard - Page 3
vPhua the trust inotrumentexprsesl provided
that the death of the grantormust in all events occur
before the remainderof the astate cbn take effect in
ssesslonor enjoymentin ap;wllant, e beneficiary.
fitd thus the trust instrumentby ita o3 ternusbrings
the iz&mt case equavelywithin the statute,which
does not iapoee the tax on the trmsfer of the property,
tlor.gn the aming of the propert from the grantor nor
on #e righe to beooae beneficial Py lntereetedin tlk
pl'operty, but ispoees the tax upon the pass+ng of the
property or interestt2.ereki when %ade or lntonded to
t&e effect in poasesslonor enjopent af'tm the Ceath
of the ~ra%ar. 9"
Tuz-ther, the CoWt aAd:
'SCCEC our stotc ir;r.srit~ce or succeesion tsx
statute,the :-xLzaq geetion ie -ðer the transfer
vaa nedo or intendedto take effect in pooscession or
enjaynentafter the death of grantoror sottlor,particu-
larljjin casts of trznnsfer of Foperty L-9trust, It is
not a questionof when the berieficisl interestis cro&ed,
but the tax is imposed upon the i-i&t to receive in SOS-
sion or enjoymentafter ttiedeath of grantor or sett!T 0r.w
be have been able to find only two cases in the United States
gartalngupon ;FJztion of liabilityfor successiontaxes on govern-
merit;bo.l~~. I-?,19k.6,tho Louisima Court of hppeals ln the
ca8e of Successionof mxier, 24 50. 3_d&+2, by .a tu:oto one decision
held that no iAeri:aacc tax was &e. on ~ovwrxaenthsr~cis of the co-
ownershiptype.
In 1945; the Pcnna~lvaniaOrphansCourt In the case of In
re Prifer'sS&a*%, digested in 24 Gen. Ui:'est15.51*,
held that both
co-ownershipand bsneficiarybonds issued Ly the Govermont wore all
part of the decedent'sestate for Wderal Estate Tax ptnypoaea.
This depar&ent held in Opinion80. 04691 that o>e-half of
the value of L;ories2. Gsvemxnt ‘km& 0.i't5e co-omership type payable
to husband or wife, and purchasedwith cox?&fty funds, is sub'ectto
the State inheritancetex. In discussiw Lrticle 7117, E.S., it
".that
Opinion,we s&d:
Hon. George 8. Sheppard- Pa.Te4
lxi&oma a tax on the right to receive or succeedto
sseaaionor enjoymentof propert aftor the death
8 deceasedand propertyo~asestitiLn the purview
of tI?
of this 6tatUte if such poaaeaaionor eIx,jzq-aent
ia made
contingentwith or postponeduntil the death of the
grentor donor."
fn rinciple there appears to be littledistinction,botuoen
co-oitmrshipEends of fuiaband
' andwife purchasedwith c0mnmit.yfunda
and the beneficiarytype of bonds, so far es inheritancetaxes axq co&
cerned. h tha fOIXier, the one-halfcO;mmity interestof the husb&?d
in the bonds saea to his wife on hf.6death. fn the latter, the
r' omer of the b~zda paasea on his death
%cteraatof t.e to the bea&%-
CiWY.
We ere adtisodby the local office of the Collectorof Inter-
nal Revenue that the instructionsunder.which they operateark that .
such boa&a, whether of the co-omerahlp type or the beneficiarytype,
are subject to the federaleatote tax. Tha fQdera estate tax is
levied % n tho transferof the net estate of every decedent.' 26’
u. 3. c. f’
-. Sectlon 810. Likowiaeyour letter adviaeathat your office
has taxed this type of asset since the bonds trereisaued.
In the absenceof Ed&authoritativeCourt decisioneottling
the s&ter the depar&aental~eonetructlon of the officialschargedwith
the di%y oh co~lleetingtexes,both of this St&e and of the fedenl
governmentis entitledto rsuchueizht.
liccordingly,
in hamony 6th such departmntal conat~-uctlon
and in harmonywith our formeropinion above referredto on a closely
related question,NC ere conatramed to hold that the bxxia I*.q&red
about shouldbe consideredas asaets.eubjectto the inheritaxe tax.
The status of the Teacher Refirenent EieneMt inqufi-ed
about
appears to be well aettledby the authorities. Xe are advisedby the
pirector of the T-8 TeacherRetirencntEystes that the beliefitpaid
in this particu1e.r cese repmsents a return of csztributiors to the
fund mda by the deceasedteacher, ~US interestemed thozeon. GO
m&,&ing fbnds of the State me incPuded in the tacefit.
kP>aFeatlythe first case or.the subjectwas In re Fitzsiimons'
Ratat;e,287 ii.T.S.
171 (1937). The court held ttst the Teacher Eetirc-
,Tentbenefitpai< to a n~;ried
beneficfay aft&r the texherts deeth ~38
insursxto. The Court did not rQco,&ze any distinctiongrOi?in~ out Of
. 285
Hon. George li. SheDpaM - PWP 5
the source of the fund, that la, whether derived fron the contribu-
tious of the teacher or fro= the State. This decision was affimed
by the New York Supreme Court in 292 #.YrS. 168, and.motFon for leave
tc appeal to the hew York Court of Appeals was denied in 292 K.Y.S.
962.
In 1939, the United States Court of Claim in korriochan V.
11. S., 29 Fed. Sup . 860 ruled upon the status of a benefit paid after
the death of n ret f red city employee. The Cwmissloner of Intorual
3evome had detemined that the portion of the bonefit consisting of
the en:?loyee’s contributions plus interest thereon was to be tmcd 2.3
a part of the estate of tba deceased whereas the portion of the bene-
fit having its source in funds contrjbuted by the State should be
classed as Wmrance. The Court upheld the Comissionor In G.xlng the
em;;loyoe’s returned contributiona plus interest ae a part of the e&ate.
&?rtiorari was denied by the U. S. Supreme Court In 309 U. S. 675.
e qUQ8tiOtla&ein arose In Uew York in the c3tie of
In re ?hi%~g~~% 32 N Y 8 2d 473 This ttie the Court followed
the lead of the KeAo&u c&,*su ra, &d held the returned centri-
bations of the ennlo~ee v;ere taxab Ya aa a part of the estate. The
ikmi, case finady ,reaohed the !?ew York Court of h peals, court of
last resort ti that State .and was there afflned 1tf thout written
opinlonr 60 X.X. 2d 8.42 (1945).
The Xernochan holding has also been followed.‘bp the still
later cases of In re Burtnan’s Estate Al U.Y.S. 2d 77e end Greg Y.
Co~ztissioner, 54 Ei.E. 2d 169 (?&xx.), the latter case Involving an
annuity purchased frwa an insurance coq~any~
See also Xerlvering t. LeCiorse, 312 U.S. 531;I.40
A.L.R.
719; 150 A-IL.2. 1292.
.,.
Since the teacher ret&+!gnent fund benefit involved herein
on1 representa coiWibutlons frol!~ the deceased teacher plus interest,
p18hold under the foregoing authorities that such benefit should be
treated as en asset of the estzt6 for lnheritence tex purposes, and
that it should not be clrssed as insiurmce.
Untitled Texas Attorney General Opinion
Combined Opinion