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## THE.ATTORNEY GEti- h" "

OF =XAS

September 9, 1959

HonorableRobert S. Calvert OpinionNO. NW-690 Comptrollerof Public Accounts Capitol Station Re: Taxability for inheritAustin, Texas ante tax purposes of Social Security lumpsum death payment to widow, of Social Security insurancebenefits to widow and of payments to widow from Civil ServiceRetirement and Dear Mr. Calvert: Disability Fund.

You have requested the opinion of this office on several questionswhich we will consider seriatim. The first of thesepertains to the lump-sum death payment which a..w~idow

receives by virtue of thatportion of the Social SecurityAct which iP codified in United States Code Annotated under Title 42, Chapter 7, Section'402 (iI.
In 1940, the Treasury Department ruled that amounts payable under Title II of the Social SecurityAct, as amended by the'Act of August 10, 1939, to a widow were not to be included in the gross estate of the decedent for Federal estate tax purposes. CB 1940-2, 285. The reasons given for such ruling werethat the decedent had no control over the designation of the beneficiariesor the amountspayable to them,,said beneficiaries and amounts being fixed by the provisions of the Social Security Act, as amended, and the payments beingmade directly to the beneficiaries. The ruling furtherpointed out that the decedenthad no property interest in the "FederalOld-Age and Survivors InsuranceTrust Fund" created under Section 201 (a) of Title II of the Social SecurityAct, as amended.

Revenue Ruling 55-87, CB 1955-1, 112, is to the effect that lump-sumpayments under Title II of the Social SecurityAct are not includible in the decedent's gross estate for estate tax purposes.

7Due to the basic difference in the nature of inheritanceand estate taxes, this office has held in certain instances that rulings of the Federal Government.

HonorableRobert S. Calvert,page 2 (OpinionNo. ww-698)

in connectionwith Federal estate taxes are inapposite in a determirationof liability for Texas inheritance taxes. However,we think the provision of our statutenecessitates the same result. The only provision of Article 7117, Vernon's Civil Statutes,which couldsubject the Social Security,,benefits to a tax is the one which taxes transfers made by .deed,grant, sale or giftmade or intended to take effect in possession or enjoyment after the death of the grantor or donor.

. . .' The covered employee having no choice in thematter of coverage,nor in the selection of beneficiaries,liar indeed any assurance that either he or anyone else will ever receive any Social Security benefits, can scarcelybe said to have made a gift intended to take effect in possession or enjoyment after his death. You are thereforeadvised that the Social Security lump-sumdeath payment to the widow is not subject to inheritance tax.

You have also requested thatwe advise you whether the old-age and survivors insurancebenefitpayments which the widow will receive by virtue of Title 42, Section 402, Chapter 7 (e),United States Code Annotated,will be subject to inheritance taxes. These benefits are paid to the widow inmonthly installments. For the same reasons which we have just stated in connectionwith the lump-sumdeath payment, you are advised that such benefits are not subject to an inheritande tax..

You request thatwe advise you as to the taxability of a survivor annuitypayable to a widow from the Civil ServiceRetirement and Disability Fund pursuant to theprovisions of Section 2260, Title V, U.S.C.A.

In Revenue Ruling 55-682, IRBNov. 14, 1955, 18, the Treasury Department ruled thatwhere the decedent did not designate a beneficiary other than his estate, the amount payable upon his death is includible in his gross estate under subdivision (a) of Section 302 of the Revenue Act of 1926 as amended, and where he did designate a beneficiary other than his estate, the amount payable upon his death is includible in his gross estate under subdivisions (c) and (d) of that section. This ruling has been printed in CB 1955-2, 601.

Rev. Rul. 56-1,'

kt',i956,~1,

444, reads as follows:
"Wherean individualwho is coveredby the United States Civil ServiceRetirement System dies before retirement, the amount includible in his gross estate under section 2039 of the InternalRevenue Code of 1954 on_ - .:
1

HonorableRobert S. Calvert,page 3 (OpinionN,. WW-698)

account of an annuitypayable tothis surviving spouse, or other beneficiary,

.,is the amount of the decedent's contri- ' bution to the system."

In so;,far

as communityproperty states are concerned, the followingruling has been made:

-.,. "Statecommunityproperty laws do not apply to annuities, death benefits or refunds payable under the Civil Service RetirementAct, as amended. Accordingly, the full value of retirement contributions, plus the accrued interest thereon, are includible in the gross estate of a Federal civil service employeeunder section 2039 of the InternalRevenue Code of 1954." Rev.Rul. 57-446, CB 1957-2, 619.
Death benefitspayable to a decedent's estate as well as benefits payable to designatedbeneficiariesunder employees'retirementplans have been held subject to State death taxes. 28 Am.Jur. 192, 193, Sec. 256. Cases so holdingmay be found in 150 A.L.R. 1287, 1292.

In Attorney General's OpinionNo. WW-92, this office held that the receipt of benefits by a designated nominee under the Teachers'Retirement System Act was subject to inheritance tax.

We are of the opinion that an inheritance tax is due upon that portion of the widow's annuity which is attributable to the decedent's contributionsto the Retirement System. Decedent had a vested interest in such contributionsand couldhave obtained a refund thereof had he become separated from the Civil Serviceprior to eligibility for an annuity. Sec. 2261, TitleV, U.S.C.A.

However, we are of the opinion that if such contributionswere paid from community funds, then only one-half of the amount of the annuity attributable to such contributions is taxable, cf. Blackman v. Hansen, 140 Tex. 536, 169 S.W.2d 962 (1943);and the inheritance taxes shouldbe computed accordingly.

'I .,:,, SUMMARY

Social Security lump-sum death payment to widow is not subject to inheritancetax. Social Security insurancebenefits areHonorableRobert S. Calvert,page 4 (OpinionNo. ww-698)

'notsubject to inheritance tax. That portion of the widow's'annuitywhich is attributable to the decedent's contributions to the Civil ,Service Retirement and DisabLlity,Fund is subject to an inheritance tax. If such contributionswere paid from community funds, then only one-half of the .amountof the annuity attributable to such contributionsis taxable.

Yours very truly,

WILL WILSON Attorney General of Texas

MMP:cm :

APPROVED:
OPINION 'COMMITTEE.: Geo. P. Blackburn,Xhairmap

Wm. D.'Armstrong Robert T. Lewis Fred B. Werkenthin Charles D.-Cabaniss Tom L. McFarling, :
REVIEWED FOR THE ATTORNEY GENERAL
By: W. V. Geppert