THEATTORNEYGENEBAL 

OFTEXAS 

May 17, 1961 

Honorable Robert S. Calvert 

Comptroller of Public Accounts 

Capitol Station 

Austin, Texas 

Dear Mr. Calve&: 

Opinion No. ~~-1060 

Re: Taxability for inheritance 

tax purposes of proceeds 

of insurance policies taken 

out by the decedent on his 

life prior to the 1939 

amendment to Article 7117, 

V.C.S., and subsequently 

assigned by the decedent 

after the effective date 

of the 1939 amendment. 

You have advised us of the following facts, both orally 

and in your written request, in connection with your request 

for an opinion of this office on the above captioned matter. 

Prior to the effective date of H. B. 990, Acts 1939, 46th Leg., 

p. 646, ch. 13, 8 1, which amended Article 7117, Revised Civil 

Statutes of Texas, 1925, by adding a provision taxing life 

insurance proceeds under certain conditions, the decedent had 

taken out certain life insurance policies upon his own life. 

The decedent's wife was named as beneficiary of these policies 

and all premiums were paid from community funds. Subsequent 

to the effective date of,the 1939 amendment, the decedent 

assigned these policies without reservation to his wife. Thereafter, he had no right to the cash surrender value of the policies, 

or to pledge them for a loan, or to surrender or cancel same, 

or to change the beneficiary, or to obtain a loan on same from 

the insurer. Nevertheless, the premiums continued to be paid 

from community funds. You have called to our attention the 

fact that in Attorney General Opinion No. O-5294, this office 

held that the proceeds of Insurance policies which were assigned 

without reservation prior to the effective date of the 1939 

amendment, and in which the decedent never thereafter acquired 

,an interest, were not subject to an inheritance tax. The pertinent 

provisions of Article 7117, V.C.S.l, are the following: 

"All property within the jurisdiction 

of this State,. . . and any interest therein,. . . including the proceeds of life 

insurance to the extent of the amount 

1 Codified as Article 14.01, ch. 14, Title 122A, Tax.-Gen., 

.c.s. 
Honorable Robert S. Calvert, Page 2 Opinion No. ~~-1060 

receivable by the executor or administrator as insurance under policies taken 

out by the decedent upon his own life, 

and to the extent of the excess over 

Forty Thousand ($40,000) Dollars of the 

amount receivable by all other beneficiaries as insurance under policies taken 

out by the decedent upon his own life, 

shall, upon passing,. be subject 

to'a'tax for the benefit of the State's 

General Revenue Fund,. . .' 

Opinion No. O-5294 pointed out that in Hansen v. Blackmon, 

142 Tex. 536, 169 S.W.2d 962 (194x), the Supreme Court stated 

that since the 1939 arffendment had been taken literally from 

the Federal statute, the presumption is that the Texas 

Legislature knew of the construction given such statute at the 

time of its adoption, and intended to adopt such statute as 

construed by the Federal Courts; and such statute is to be considered by the courts of this State in the light of such construction." Since the Supreme Court of the United States in 

Lewellyn v. Frick, 268 U.S. 238 (1925), had passed upon the 

identical question presented by the Comptroller's request and 

had concluded that under the facts the transfer was not subject 

to Federal estate taxes, the transfer could not be deemed subject 

to Texas inheritance taxes. 

The fact situation presented by your instant request is 

entirely different from that considered in Attorney General's 

Opinion No. O-5294 in that in the instant case the assignment 

took place subsequent to the effective date of the 1939 amendment. In other words, the assigned policy was within the provision 

of the taxing statute at the time the assignment occurred. The 

question, therefore, is whether an assignment without reservation 

takes the policies out of the purview of the statute even though 

the premium payments are thereafter made from community funds. 

In De Coster v. Commissioner of Taxation, 11 N.W.2d 489 

(Minn.Sup. 1943), the court held that the proceeds of life 

insurance policies were subject to inheritance taxes in a case 

in which the insured obtained the policy and held some of the 

incidents of ownership at the time the statute went into effect, 

and that the proceeds would have been subject to tax if he had died 

immediately even though he made an assignment of the policy 

prior to his death. 

The annotator in 73 A.L.R.2d questions the wisdom of this 

decision pointing out that the Minnesota Supreme Court later held 

in Diamond Poultry Farms, Inc. v. Commissioner of Taxation, 91 

N.W.2d 595 (1958) that the assigned policy was not taxable where 
_- 

Honorable Robert S. Calvert, Page 3 Opinion No. WWthe assignment occurred before the statute was amended; but 

declined to decide whether the De Caster case should be overruled 

since it was distinguishable in that the assignment occurred 

after the amendment of the statute. 

We, too, question the wisdom of the De Coster case and 

decline to follow it. The general rule is that inheritance tax 

liability is imposed only where the thing of value was the property 

of the decedent at the time of his death or at the time of the 

taxable transfer. In those cases in which the beneficiary, rather 

than the insured, applies for a policy of insurance, pays the 

premiums on it and retains all the incidents of'ownership, the 

person who applies for the insurance and holds all legal rights 

in the policy is the owner of the policy and its proceeds. The 

policy is not the property of the insured, and he does not transfer 

any property at or before his death, nor is the beneficiary liable 

for a succession tax on the death of the insured. The cases so 

holding are collected in 73 A.L.R.2d at page 219. In such 

instances, the State could not constituionally levy an inheritance 

tax on life insurance proceeds since there is no taxable incident. 

In some jurisdictions, statutes relating to the taxation of 

life insurance proceeds seem broad enough in their terms to levy 

a tax on the proceeds of a policy even though the beneficiary 

owns the policy and pays the premiums. However, the courts have 

generally read into them a limitation to cases in which the 

insured owned the policy. See 73 A.L.R.2d 220. Such is not 

the case under our statute which expressly limits the taxing of 

proceeds of life insurance to amounts received as insurance under 

policies taken out by the decedent upon his own life. 

It is true that the insurance policies in question were 

originally taken out by the decedent upon his own life; but once 

the decedent assigned these policies without reservation, we 

think that that fact becomes immaterial since he thereafter had 

no property rights in the policies. We also think that the fact 

that the decedent chose to continue to make the payments from 

community funds is of no significance since this fact did not 

operate in any way to create any rights of ownership in the 

decedent and amounted, at most, to a gift to his wife of his 

one-half interest in the payments SO made. We do not view this 

as a gift to take effect at his death since the w~ife could have, 

at any time, obtained the cash surrender value or pledged the 

policy for a loan or surrendered or cancelled the policy or 

obtained a loan on the policy from the insurer. 

We expressly limit our holding in this matter to cases in 

which no question of a transfer in contemplation of death is 

presented. In other words, if an assignment was made within the 

two year period prior to the death of the assignor, which Article 
-_ - 

Honorable Robert S. Calvert, Page 4 Opinion No. ~~-1060 

14.01 provides shall be the period within which such transfers 

shall be presumed to have been made in contemplation of death, 

a different question would arise. 

SUMMARY 

The proceeds of life insurance 

policies taken out by the decedent upon 

his own life prior to the 1939 amendment 

of Article 7117, Vernon's Civil Statutes, 

which added a provision taxing life 

insurance proceeds under certain conditions, 

are not subject to inheritance taxes where 

the policies were subsequently assigned 

without reservation to the decedent's wife 

even though thereafter all premium payments 

were made from community funds. 

Yours very truly, 

WILL WILSON 

Attorney General of Texas 

MMP:cm 

APPROVED: 

OPINION COMMITTEE: 

W. V. Geppert, Chairman 

Iola Wilcox 

Robert T. Lewis 

Robert Rowland 

Sam R. igilson 

REVIEWED FOR THE ATTORNEY GENERAL 

By: Morgan Nesbitt