Court Opinion

ID: 4142212
Source: CourtListenerOpinion
Date Created: 2017-02-18 03:19:22.663454+00
Date Added: 2024-06-11T14:34:48.178478
License: Public Domain

-4
3.
,\*         OFFICE OF THE ATTORNEY     GENERAL   OF TEXAS
b.
                              AUSTIN

      IionorableCerrge IT.Sbegpard~
      Oom~troll~rof Publla Baoounta
      iiutttin,
             lkxaa

                                               lottrr ua the aa-
                                               ea rollmt In 1938
                                                in rapor 0f ma
                                                . me gFanto*WmQtt-
                                                   of $l80,000*00to
                                                  ooajtlypayable to
                                               or their oath mu--
                                           ao abluation to pay
                                         tad  for the safe keeping
                                           the prfmads on OF srter
                                   doatE of the grantworthotnm-
                                  olleot the procoed* o? ths pol-
                                   6iWtsr pay the otypua or tha
                                  08 or fnrotttunder apre8iwt
                             ior a 4,aihlte   porlod cU yoarr,   die-
                            itlOOt $0 eaoh Or the bM.flQi~i~~r
                            trwteer 8re given     authority et
                                                            cap
                           4lstPibut~ uiy mrt of tb. ecnpus ot
      the trust a8 they may eonrider to be to the best intmMt
      of the banefioi8risa. 4Mole XIII of the trust lntttrwm t
      gro7ldse for the f~llmlng~continmnayt
           *(aI In the sront   of the death of any of
      the beaetiolarlen,  unsm~~ied   or not having child
      or ohllilmn surviv~n&him, ii EarMod, then hfe
      share in the trust estate shall go to the SW-
      viving l.wu3fiol4ry or benefloiariea,ahttreand
      ahars ellke ii 45th~ or both cr the4other bsne-
      fioi6rieB survive. If there are a0 surviving
      beneiioiariesand so surviving ehil(!or-ohildren
      of the beaefloiaries,.thtmthe trust estslte sh4l.l
      pss aetordiq to the last will and testement 8f
      the larrtttaniri~   bamiieiary,    or acoordiag to
      the lare of Qerqont and dietributlonii h4 die8
      w'ithoutnIlI.
           "(b) In the event eaid cIcrcesaod.~~%enefliai-
      nrlts shall have bean ~~&+rriedand leave 1 ohild
      or aE.lldz!tn
                  au~~lrittg him, than ltuttecd of the
      deosai348b4n4fioi4r~~4r' sham3 bei~~@dmini4t4*
      08 ror the bensfit of the other bemfloiaris~,
      it shalLbe atbaiai*tendand belong to t&e::~up
      viivsing
             cE!lldor aEll&ea, ahart and share alike.*
             ha.to    the Wxablllty ni tbfs'~trwtthe f&?uLQ@
quo4ticnta   ha*4    been 3uhsllttedt
           nil) Are the prau**d4 er the inruF0nos
      polIolee plaoal Zn trust, 106s~thu st.a.utorg
      sxwption, taxable under the Texa6 XnEstitanas
      Tar law?
             w(2).If it   be ahown that   the benafloltariw#
      under the trust prld the ~eaiuuts on the inaur-
      anoe p03toles  after 4wte were plaoed in trWt,
      aat #feat w@tld thltihew upon tho tax.&Ultp
      of the ~roaoeds oollooted fItsrounder:
           *(?i)wmm   the besnefiolariesbe entitled
      to an c+xemptlQnon the ih4uraa44 polioi
      equal to the oash aurrsn~er value of eaid poli-
      clss at the tlms aaid poliolaswsre trunsfwmil
      to the trust?"
                                 bioil Etatutes, as~wrandod
             .;rtlole7U9, Reisrieed
Zn 1939 gro~iU4st
                  "41 PrOpWty rithln the JurlsrdiotlonOX
             thld state. , , miuaing the proo~eds or life
             1 nsu la zlo e        . l   . to   th e    e x tent   of   the     exams
             riverForty Thow.sratl
                                Dollar8 ~&O,OOO) of the
             emunt maelrabla by all other bsneficlariea
             cc ineuranoeuaclerpol2olecltaRen out by the
             ueael!ent
                     upon hf8 am liia . . . Taioh ahell
             pas8 absolutelyor In truut by ulll or L;ythe
             laws of deeeent OT distributionof t.h,ls OT any
             ether Btato, OP by daad, gx-a@, aale or gift
             mada or 1ntePldbd to take eff8Ot in pO66086i0B
             OF anjoyaent after the death or the grantor or
             donor, shall, upon pamUng to or for the use
             of any person, oorporatlon or atl6ooiatff.w,be
             eabJsot to a tax.. + .*

                  Lat w ooneider the nature af the ~intem8t8 W
IL     thm beneflolarisrundortha Iaauranw trust orc~almdby Bm
I      L   s-B:19w.          Prier to the daath of the aatgor in
 1     19451. the bsnefloiarlaaaaoh ha6 e ma third Intermt ia
 ,,.~ tha ultfeafd pros+eda 0r‘thr l~~uranos polioUm plaaad in
I ,. '.trwt, i?mbJeot, hbm~bk, to eomplet6 defeausme until t&a
~    : dlstribatlonoi tha praoobds by the tmtees ~cl%or the
       Math of the eettlor. Ii my mo of the buaef~ciatieedie&
       aurag   tn6 ure 0f the aettlor witmat. 1u.w. his intereut~
       rpc dwaated. 3urlag this period the beneflo3.arl.a~ had no
       tight to the proo8rds or %nJo$aent cd ~thspropexty~tr the
       lmurancs poliaiss. rt 16 mat,until the cUetrlbUtlonof
       the prwesd8 ai the pozioiea by t&t t zWi?te8uin aoOOrdaUoe
       with the terns of tie t~'Wt~~ar'tcrthe 866th ti ths,Mt%~or,
       tket the lntmerta oi the bmcrfloiarieab6ow.e inde?tea#iblr.
       teated. Gertsinl~ Eht grant Pa t&e beneriaiarleh  aould not
      %sb3    arreo*          ln   poeaoreion          ‘or sajoyaent~         until     *after   tbo
      arm     0f the ~rtmm.*
Bonox'able
         Gem@     ii.Shapmrd, Page 4

8 mr0aotive     erreat t0 the 1939 43mnb~nt, 3b9e the
trensrer cr all the dscc8ent's latarest toolc pk30. upan
the araation of the trust in 1936. Lewellgn v. Friok
 (lses) 26t3u. E. 23&3, 69 t, h?. 996, 45 3. ct. 487;   Biw-
ham V. c. Y., Z96 17.S. 211; Indufbtrlal ‘bust co. 0 v. s.,
298 -3. T. 2.20;HelverinF v. Helmholz,~ 296 U. C. X5. r;uah
1s riot,however, the nature of the ‘i'eraa  lnharl.tanostax.
It da88 not tax the trsnefer of pro~ertg by the deaedant,
but ratner the pxiv%lage of the bsn0fiolary     to rsasire
the property. '!.?~is di6tlnatlonbatween,theFedamate
tax and tha Taxas Inharftanoetax ‘Ia8 oleerly enunciated
by Judg% Elalr for the Austin    CmWtof ClvU A peals In
E&heee P.   ShspparC (1940)  ,143 S. ir.(2d) 997 fwrit of
error mfuatxl) at page 10628
           %a do net regard        as tiaoesmary a lrqthp
     dleousshm   of+heEi8tinotion         rkcrognlzotl by
    the  authoritiesbetwtven the        rsderialestate    tax
    ana the lnherltuw! or ~uooersiontax levied
    byttho teriouz statem. Suffio8 it to say that
    the federal estata tax is bposed          upon the right
    of grantor or tmx38faror to transfer property,
    and that the inheritanceor suoaee8lontax by
    the State ia impo8ed upon the rlgbt to mosiw.
    or-8uooeed to the possa88~oz oi enjopmt of
    progsrW* Her la it neoe88ax-yto disaue8 th8
    oozfliot Of euthorltieenith lW8paOt to th. dis-
    tlnotlvn as to thaee tuofomz of taxeo.              Under
    the Federal Eatate TWL 'an, the primary quas-
    tlon to d&on&m          1s whon the deoedent or mant-
    or parted with all property rights, Under our
    Stats Inheri"Wnosor SUOC68OiOn Rix %tat;lt*,
    the crlaarp question la whsthor the tr6nafer
    was made or intended to take btreot         fn po8SMh
    slon or enJoynat aftor tha death of grantor
    of settler,    psrtloularly      in ‘JadlCiS
                                              oi tramifer
    of pqarty      ia trust.       It i8 not a que3tion Or
    whan the benef~clal         lntorast 18 orsated, but
    the tax is imposed upon the right to moeive
    in poesession     or enjoyirent aftss tba death oi
    grantor or aettlor, In oon36quanae',          a grantor
    or settler    map cwa%s a iireveaable         trust   dur-
    in: hisilifetiprre,     atill if ha pO8tpOnWJ the
    right of'posueeslon or enjoymant or-the bane;
    flaiary until     after     grantor*6 dWth, the prop'-
    erty or any interaat therein         hR 8uh$Mt to tU
          lnherl8anoror 8uOo*rui0a&ax at or after hi8
          death.    Under bur 8tatute, where either vp~
          seteslon*  or ‘enjqpient*    i8 mde wantingantupon
          the death of grantor      Or 8e$tlor of all or any
          part of the truet mtate, 8uoh transfer iz.taxa-
          ble."
               Rts above qtmtaticm disousdn(3as it dooz, the,
                                l
     general prlnelple8 Of thy ppil0atlonof the %~a& Inhe~rit-
     anoe Tar Law ta inter PiTO trU8t8 whereby the alttlor    po8t-
     r-8 until after his death, the bensiioiar$~spe8iae881oa
     and enjoyment, sean8 to oonpel the oon~&~sion that the in-
     euranee~truet In the in&an$ oasb 18 taxable, eino~mherO,
     not merely the ow!.lz& into po8#&8SiOnand enjogaarrt  br tti
     thrse benrflolarles,bat also the~lndefOaalblOvestin& of
     their respeoti~e fntlmmts OanIKXttake ~.aOCunti%af'tOr
     the dezth Of thO iettlok.   FhrsOplnlon Pn th8 Bethea oasb
     applies wlth lreCgreater  partliy.lariDp     to Um inntant
     oan$ in faob, 80-8    &host drserlptire
                                           of it, whul it
     aiSW88e8 th8 pro*iSiOlU~           them SEVO%vOd,at
                            Oi the'fr\lrrt
     paga1001:
               "ThdI8,BNI OOMkUO th3 bl3tlWS3llte, i
          conelm8ive&yshOwi* th8 latention 0r grantOr
          w 8ottlor   to ultbbold   the full   .or ompletu
         p08se88ionor enjoyam&t OS the truzt srtate,ex-
         oept the anmlty paysblsto appellurt prlmerlly
         out of ths revenueas,     frrrnappellant gtil after
         the death of grantor, or until eight mars
         after   her de&hi     The truzt  hztmment    *xp*zz-
         ly provides    t&t% the *rsm$indar*of the e&ate
         ‘SW1     not be diatrlbutad’    &a~$~  tb* ilf@Jtlne
         or grantor, and not*untll the explntlon or
         eight yeara after her death’. The transfer
         or right of poaeese&on or anjo~ent of the re-
         maln&*r ot the trust t38kk, was Redo aontla-
         gent upon apppeUant*amn-vlllng ths ~mmtor,
         whloh neosssarilpfixed appOllant*sright at
         or after the death or grantor. . . Thw the
         trust Instrument exprssslppprovldsd       that the
         death   of the grantor imet ta c&l eventa Ooaur
         before the ram&near of t&e estate aan take of-
         rOotin possessionor enjoymeatln appellant,.
         the benerioiary.      &bd ttlUUthe t-t     iJl8tX'UKi*nt

ii
    by its OWR tenon brlzqe th6 inataurt  aa6e 6qU6r6-
    lp within th6 ut6Eut6 whiah do6a not impae the
    tax on the tranef'nro# t&6 property, nor on the
    papaaslng
            or the props*y frclathe grantor, nor
    OR the ri@.~tto baooms ben6fialallfintWeeted
    in the property, but lmpos68 th6 t6x UQ*?Rth6
    p686ln& Of the prOp6l'tjr
                            OF lnt6F66f tharsin wh6n
    'IAtiaO
          OT iII6OrrdUd
                      tb t&k0 errOOt in pO66e66iCuI
    or enjoyment after t!w death et the grantor'<
    In other words, the thilng'bordsnba  with the tar
    1s the right to reoeiro or the rl@6 of 6w1068-
    eion a8 d16tl6&!Ul686d?rom the r1Eht 0r traanfsr.
    state v. Hog&-m    T&xi SW, 90 si % (2dl 699,
    78 C..W. 2nd RQ3.w
          Appwtbg 6hb 6bOV6 OOISUmI6tl66Of the m-6 Ia-
heritanos !hx ha t0 thb 166t66t 0666, it iOlXOw6 the6 the
turbl6 OTeat, ($.a+ ths 6oarual olrthe r66pbotiVdbswii-
6l6rie6' Tight6 t0 ?666ive th6 pXVO66d6) t&66 p&t6, ait6r
the death of th6 6OttlOr,WElOll06eurr~d in 19U, aad tE8re-
                    urrurt $8 &tV6llto the loa9 65Wildm6nt
r0zr ao.rutrcrcrotlrs
in aparing %t in t&l8 06660

          "so long a8 the privilege or 6uOk68iOIl
    ha6 not been fully rx6r0166d it may b6 maohwd
    b~tdm tu. See Gahen v, Erewatur, %03 U. 8.
    543? err P. ~Ollman,183 0. 8. 890; 0-r     l'r
    g6166p, m)b u. 8. 4661 #Otiitt Ve Quo, a?18
    u . S. 400# WloEel v. Cole, a!56U. S, ES%"
         In cahea 1. isrsrrstor,
                              oit6d &bmo, th6 %iti
8t6tOt3&pm6    hUrt SWtI!liWd6 Lorii6iaM 1IIh6ritaaOOt6X
levied upon the estate of a dwedent w&4 did prior to th6
pa66age of the taxing aot, but befOr dlstrlbutlonof the
propertT.Yr. JU6tiOO St6%nn6, In that opinion, dsolarad,
atJ-*Te 551:
         ~Thore 1s nothing la tho6e oa6b6 whlah r6-
    6tralns the ponw of the f%tatea6 tQ the tlmo
    of the l5po6ltlon or the tax. xt mpg 66leot
    tb#lmoment or death, or it may exerol66 It6
    power aw*    eny or tne tlllle
                                 1t hold6 the pkop-
    etiy frctmths legatoe. *It la not’, we Mid la
     the Pmklns   OaaJb,*Ulltl.l it   ha6 yleldQd Lts eoa-
     Crlbution tc the Stat.ethat it beoem61)
                                           the prop.
     arty of tha legate@.*"

          h@Tt in hi8 WCTk Oil"!#W6ttlUld %33l6tOO6",  vol.
a, s606 281, mkse the iOilO%ing 6tat6Bleata8 to the a-
bility Or trUst8 areated PZ'iOrt0 the ~WQ&I@ ot the tax
law, ln which the beneiioiaricw’ interests are eabJe9t to
dereaaauoeuntil arter ths death or the 6ettlOrl
          *Put, if auoh remainder, though teohn:o~l-
     1s VWJted war0 eubjaat t0 d4fe66anw at t!#@
     tti0 the tar 6tbtUtb 06X6 into
     or stat.6authorltJr sustdm.tb6
     tax, rSether.thermalndsr wara
     failr?reor tbs.~inds~n      to 6Ul73V6 the.death
     or tk4 iir4 tehiut or thr ~i,t%lor.~~
          In Belieriq~.v,H~lioik'(i~4o1,,309ti.8, 106,
60 9. ct, 444, 04 L. Ea. eor~,~~w~AiL,'R. lasu, tae l&llt.ad
St&68  SnpT6iU6COUTt held th6t UL iTlWviMab~6tat&T +tvfb$
truaf W66 mbjsot to the federal 66t6te tax Op06 ths~'d66th
of the wttlor;  we6m his death utlngulahed
0r rsoerter Lo him-~ aon6tltutlagitranrf6r
ta k e     in p W64 68iOB Or k y o g 6Sttlt o r after
     c uieOt                                            h i6dwth.”
If the Uti.ll@XbhaeAtOf 6~Qw6 @ itj Of F6V6l%6r 6t the
8ettler*8 donth'aonetlttieej Wtx&ble evont'hndot.tha'frd-
rml estate tu vhloh loakr '00 the transfer f’roar the km-
dam as the ddenas~    of the t&x-oertalaly the et$Qsgulsh-
Em Of 6 p0?8ibti%tJ OS dem66a66 Or ?A6 b6t.ieliOfa’~O6’~
lmmestg under & trust, would'om6tltu~~6 t6x6blo evsnt
under the Texas lnherltuoaetax, which 1-6    to the ssoeipt
of property 5y tti b0mrioiw    a8 th6 lnoldenor of the tcu.
          ~ThsSuprem Oourt of Uoaa66tlowttin di8ctrsaia&
the in0iaOno8 0r the lnherlt6noo~tu or that Stats in 'Ibpplag
'I. MeLaughlin 11939) 6 Atl. (Zd) 549, deolaredt
            "It applies to tr6q6fers,wh6rslnthe dwth
     or the ssttlor is a tijotw in the deoolutioa of
     the use or enjoymat or th6 grOp6rty. It i6 la-
     tended to reaoh a shiftlag Oi the eafOpmaat al
     prOpert~--eooaemlobbnsflt8 or 66oIl6mloln~erema
     ther6ln-whleh boara a dtitfiaot8na aeosesar3
     relation   to the death or the s6ttlor."
E~mxable George IL Sheppard,Page a

          &A as said In Re Rollander'aXatate, 12S d. J.
Eq. 52, 195 A. BUS, VW, quoted with approval in Rsthaa v.
          145 b. n, (2dl 907, 1002:
~he~i~ari?,
          *The teat of taxa?~ilityis not th6 ti~a
     of the Ompht.8 diVeStinp of tha ~~CUIS~QTO‘~~'~
     intcreet or owmrship; it is tha tima of tho
     o-late euooeseion by the transfarae.Fhara
     thara is a transfer ct a 8paOlfiO intareet in
     property and tha suooaesloa0r the transfena
     doas not become, and under the teame of the
     transfer   58 not to be8cuns
                                oom~lets uat%l a time i
     at norafter the death 0r the trsaefbxor,that
     transfer is tarablq. %ie alstlnctioa  . . ,
     nsts oa . . . whbther the done@ I.8 daprllad
     of aa interest a? amm kind . . . until the
     dOnOr’s death.'"
          Under the aathorltioaend far ttqir9afxons ,aOrafn-
above dlaeuased,in aaswar to your first .quaatioa,It ia our
opinion that th8 ~Xo8bedS of the 1lTa inayraaoa poliotea
placad'in trust by Mr. d. Eehwartz in exoef~8of .$40000.00
am aubjaat to the lnheritanae%ax JBrosad by.*iu?tlria 7lX7,
?i.C. %,~a8 orrfmbd in l.539.
          ~Your 88CCUIai$sast1on,ralatiAg’i0the a&i     upOn
tha tarabllityor ,thaprO@ieds of tha FOliaias, ii itsbe
shown that the baaafiola~iasm&l tha pritkiuaastnoa the
omatloa of tha truss Ia 1935, is sub8tantially   the ema
as that involved kn nansea V, RlaogPon raaantly daaldad
by tha El Paso Court oi Civil &paila L nhloh appliaatlan
ror writ or axxor in now panab betom the Yexae yUprea0
couxt. Until the Snpmme Uourt paaaelroa this quartl~,
we 40 not oonoidsr it propar for us to att9mlit to answer
it.
          For the raesons aiseuasad above, it 1s our apti-
ion that your thizd guantioa should be enswered in ths naga-
tive; i.e. that the baaafiaiariasare not entltMd to an
ase~tlon on the iaauranaa~polloit~equal to ths oaeh mm-
randar value of aaid polialaa at t&e time said polials6
wara tranefnrredto tha trustr sin0it ta9 tromar 0f tna
pollales to the be,nafloleriee,dtetin@maa     rmwthe true-
tees, uar’.er
            th8 terms tprtha trust, doaS not baoam o~lata
until after Yr. h. :':
                    c.hwartz*sdeath, the eurrer.dervelue
or the policies a8 of the date of the meation or ins trust
oan ixiv8no si~hiri06nce for lnheritanootax purpsers.

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