TEEATJTORNEYGENE~ 

OF TEXAS 

FVIJiL WILSON 

*-x-r0RNEY GENERAL 

February 28,,lg61 

Honorable Robert S. Calvert Opinion No. WW-1003 

Comptroller of Public Accounts 

Capitol Station Re: Reconsideration of 

Austin, Texas Opinion No. WW-922 pertaining to taxability 

for inheritance tax purposes of bequest to the 

United States to be used 

for the retirement of the 

National Debt in view of 

Dear Mr. Calvert: 

new proposal with regard 

to.use of said bequest. 

In Opinion No. W-922 this office -considered the taxability .for.inherLtance ~tsx purposes of a beque~st,in trust to the 

United States Government to be used'forthe retirement of the 

National Debt. The specific bequest reads as follows: 

'I direct that any Income from'the 

Susan Vaughan Clayton Trust.No., 2 . . . 

be paid for the period provided in the 

instrument creating said Trust, as 

follows: 

"(a) One-half (l/2) of such income 

to my beloved country, the United States 

of America, to be used for the retirement of the National Debt. . . . ." 

This bequest was subject to inheritance tax unless exempt 

by the following provision of Article 14.06-Class E, ch. 14, 

Title 122-A, Ts.x.-Gen., V.C.S.: 

"Provided, however, that this Article 

shall not apply .on property passing to 

or forthe use of the United States, or 

to or for the use of any.religlous, educational or charitable orgsnlzation,~ incorporated,,~unlncorporated or in the form of a 

trust, when such bequest, devise or gift 

Is to be used within this State. The exemption from tax under the preceding provisions 

of this Article shall, withoutlimiting its 

application under other appxopriate- clrcumstances, apply to all or so much of any 
Honorable Robert S. Calvert, Page 2 Opinion No. WW-1003 

bequest, devise or gift to or for the 

use of the.,United States, or a religious, 

educational or charitable organization, 

which is, In writing and.prior to the 

payment of the tax, irrevocably committed 

for use exclusively within the State of 

Texas or transferred to a religious, 

educational or charitable organization 

for use exclusively within this State.". 

,In an effort to obtain exemption, the following proposal 

was submltted,in a letter from William B. Butler, United States 

Attorney for the Southern District of Texas, by Norman W. Black, 

Assistant, dated July 13, 1960, addressed to Honorable Robert S. 

Calvert,.State Comptroller of Public Accounts. 

"I.have informed the Department of 

Justice (and they have informed the Secretary of the Treasury) that Article 14.06 

offers a possibility whereby the Unit@ 

States could,legally.avoid the payment:~ 

of State Inheritance Taxes onthis Trust .': 

5 

the tax is estimated at approximately 

400,000.00). The Secretary of the 

Treasury has suggested the following: 

arrangement, whereby the ,income from thebequest by the late Mrs. Clayton could ~1 

be used exclusively within the State:of 

Texas for the retirement of the National 

Debt. That proposed arrangement is as 

follows: 

"'The Treasury would make special 

arrangements.to receive within the State ~ 

of Texas moneys representing income derived from the Susan ,V.~Clayton Trust No. 

2 and would maintain them in a separate 

account in the name of the Treasurer of 

the United States in the State of Texas 

and not intermingle them with sny.other 

funds of the United States. Such moneys. 

would be used solely to redeem public 

debt obligations presented to the 4’Waswy 

for redemption in the State ,of Texas. 

"'Specifically, .the~,moneys would.be 

paid to the United.States at the.#Federal 

preserve Bank of Dallas; Texas, for credit 

~to the Treasurer of the United States.: : 

The Treasurer would maintain a special '~ 

deposit account with.the Eederal Reserves, 
Honorable Robert S. Calvert,.Page 3 Opinion No. WW-1003 

Bank for these particular moneys. This 

account would be separate from the account 

now maintained by the Treasurer with the 

Federal Reserve Bank of Dallas for General 

operating purposes. .The moneys thus 

received in Texas and held on deposit with 

the Federal Reserve Bank of Dallas would be 

identified specially on the books of the 

Treasury to be available for retirement of 

the national debt. From time to time, as 

public debt obligations are presented to 

the Federal Reserve Bank of Dallas for 

redemption by that Bank as fiscal agent 

of the United States, the Treasury would 

direct the bank to redeem such obligations 

~-from the moneys held on deposit In the.speclal 

account representing the income from the 

bequest."' 

Opinion No. WW-922 reviewed the controlling court decisions 

and reached the following conclus-ion: 

"We think that the foregoing decisions 

demonstrate that the 'use1 contemplated 

by the statute is a direct, actual uses 

within the State for the benefit of and 

limited to its citizens. We,do not think 

that this requisite,use can be satisfied 

by the~mere retention in the.State of 

funds devised for the retirement of the 

national debt. Any benefit which the ,~ 

residents of this State would receive 

under the proposed arrangement would be ~~ 

at best an incidental benefit shared 

equally with all of, the residents of all 

other forty-nine states." 

In view of this conclusion exemption was denied. 

The United States, through Its appropriate officials, has 

submitted another plan which It is urged would satisfy the 

requisite use withinthe State of Texas and result in exempting 

the bequest from any inheritance tax. We set out the plan, as 

submitted, below: 

"The Treasury would make special arrangements to receive within the State of Texas 

moneys representing income derived from the 

Susan V. Clayton Trust No. 2 and would malntain them in a separate account ln.the name 
Honorable Robert S. Calvert, ,P~age ~4 Gpinion~.No. ~~-1003 

of the Treasurer of the United States 

in the State of Texas and not intermingle 

them with any other funds of the..Unlted 

States. Such moneys would be used solely 

to redeem public debt obligations owned 

by residents of the State of Texas presented to the Treasury for redemption In 

the State of Texas. 

"Specifically, the moneys would be paid 

to the United States at the‘Fe.deral Reserve 

Bank of Dallas, Texas, for credit to the 

Treasurer of the United States; The Treasurer 

would maintain a special deposit account with 

the Federal Reserve Rank fork theseparticular 

moneys. This account would be separate~.from 

the account now maintained by the Treasurer 

with the Federal Reserve Bank of Dallas.for~.. 

general operating purposes. The moneys thus 

received in Texas and held on depo~sit with. 

the Federal Reserve Bank of Dallas. would be 

identified specially on the books of the 

Treasury to be available for retirement of 

the national debt. From time to time, as 

public debt obligations owned by residents 

of the State of Texas are presented to the 

Federal Reserve Bankof Dallas for redemption 

by that bank as fiscal agent of theunited 

States, the Treasury would direct the-bank 

to redeem such obligations from the moneys 

held on deposit in the special account representing the Income from the bequest;", 

It is evident that the only difference between the proposal first submitted and the last proposal is that In using 

the trust income for the retirement of the National Debt, such 

use would be limited to the discharge of such public debt 

obligations as are owned by residents of this State. 

Although the Government's position In connection with this 

new proposal is appealing on its face, we do not think it will 

bear analysis. True, only residents of,Texas will have obligations of, the United States Governmentsatisifed from the bequest, 

but are we to assume that an obligation owned by a Texas re,- 

sident Is, for this reason, any less an obligation of the Government of the United States or that the Government's liability 

is limited to this bequest or mustbe satisfied therefrom? 

Wherein lies any~benefit to Texas residents Lnthe satisfaction 

of these obligations from this special fund rather than from 

any Government revenues? Were,,we,to assume .that the Govern- 
Honorable Robert S. Calvert, Page 5 Opinion No. WW-1003 

ment will default in whole or in part in the discharge of 

its obligations, Texas residents, as a result of the contemplated commitment, would have no added security for their 

loans. The proposed commitment could not so change the 

Government's existing contractual liability to all its 

creditors nor effectuate any priority for Texas creditors. 

Finally, who will ultimately benefit from the retirement of part or all of the National Debt of the United States? 

Not just the creditors who are repaid the loans that they have 

made to the United States. Rather, all of the citizens of the 

United States will benefit in the resulting diminution of the 

tax burden which they must bear. 

We must, therefore, again conclude that any benefit which 

the residents of this State would receive under this last proposed arrangement would be, at best, an incidental benefit 

shared equally with all of the residents of all the other fortynine states. The requisite "use within this State" would not 

be satisfied, and exemption must be denied. 

SUMMARY 

A bequest in trust to the United 

States to be used for the retirement of 

the National Debt may not obtain exemption 

from inheritance taxes by a commitment 

that the bequest will be used to redeem 

only public debt obligations owned by 

Texas residents. 

Yours very truly, 

WILL WILSON 

Attorney General of Texas 

MMP:cm 

APPROVED: 

OPINION COMMITTEE: 

W. V. Geppert, Chairman 

William T. Blackburn 

Leon Pesek 

John C. Steinberger 

Marietta McGregor 

Assistant 

REVIEWED FOR THE ATTORNEY GENERAL 

By: Morgan Nesbitt