Court Opinion

ID: 4135560
Source: CourtListenerOpinion
Date Created: 2017-02-18 02:03:41.838033+00
Date Added: 2024-06-11T14:34:32.105765
License: Public Domain

Honorable Robert S. Calve&           Opinion No. NW-1419
Comptroller of Public Accounts
Capitol Station                      Re:   Proper method of com-
Austin, Texas                              puting Inheritance taxes
                                           where life estate is
                                           coupled with a power
                                           of appointment under
Dear Mr. Calvert:                          submitted facts.

       You have advised us of the following facts. Mrs. Mattie
Virginia Brown died testate on August 13, 1961.  Paragraph 3 of
her will, which has been duly admitted to probate, reads as fol-
lows :

          “3.   TRUST _OF RESIDUE.
            “(a) All the rest, residue and remainder
         of my property and estate, both real and
         personal, of whatsoever kind and wheresoever
         situated, of which I shall die seized or pos-
         sessed, or of which I shall be entitled to
         dispose of at the time of my death, I give,
         devise and bequeath to my Trustee, hereln-
         after named, IN TRUST, NEVERTHELESS, to hold,
         manage, Invest and reinvest the same, to
         collect the income and to pay over the net
         Income a8 follows:
                “(1) To pay the sum of FIFTY ($50.00)
          Dollars per year, during the life of my
          husband, to The First Methodist Church,
          Marshall, Texaa.
                “(2) To pay over the balance of said
          net income in quarterly Installments to my
          husband, J. M. Brown, during his life,
          to trg!;3)r Upon the death of my husband,
                       convey and pay over the prln-
          cipal to or’for the benefit of such person
          or persona or corporation or corporations,
          other than my said husband, his estate, his
Honorable Robert S. Calvert, Page 2           Opinion No. WW-1419

         creditors, or the creditors of his estate,
         to such extent, in such amounts or propor-
         tions, and in such lawful interests or es-
         tates, whether absolute or in trust, as my
         said husband may by his Last Will and Tes-
         tament appoint. If the power of appoint-
         ment is for any reason not validly exer-
         cised by my said husband, in whole or in
         part, then, upon his death, such portion
         of, or all of the principal of the Trust
         or such interests or estates therein as
         shall not have been validly transferred
         by him shall be transferred or paid over
         to the person or persons to whom and In
         the shares and proportions in which my
         administrator would have been required to
         pay the same had I died intestate and pos-
         sessed thereof Immediately after the death
         of my said husband.
            "(b) In addition to the income of this
         Trust, there shall be paid to my husband
         out of the principal, in cash or in kind,
         upon his request, during any calendar
         year, an amount up to but not to exceed
         Five Thousand ($5,000.00) Dollars; pro-
         vided, however, that if such request is
         not made for any calendar year, no pay-
         ment of principal shall be made in any
         subsequent calendar year on the account
         of the amount not so requested.
             "(c) If my husband predeceases me,
          then in that event, I give, devise and
          bequeath my entire estate to the persons
          entitled thereto under the Laws of Suc-
          cession of the State of Texas, free and
          clear of any trust."
       Admittedly, the husband owes an inheritance tax on the
value of the life estate taken by him under the will. You desire
that we advise you as to whether any additional inheritance tax
is due the State of Texas at this time, and, if so, how the tax
should be calculated.
       We think that the recent case of Calvert v. Thompson, 339
S.W.2d 685 (Tex.Civ.App. 1960, error ref.) forecloses the pro-
position that the entire estate should be distributed to the
Honorable Robert S. Calvert, Page 3            Opinion No. ww-1419

husband in computing the tax on the theory that he may by execut-
ing the power of appointment effect its distribution at his death.
The Thompson case held that where the will provided for a life
estate with full power of disposal in the life tenant, the es-
tate of the life tenant and the estate of the remaindermen were
required to be valued according to the provisions of Article 712z1,
Vernon's Annotated Texas Statutes, presently carried as Article
14.08, Title 122A, 20A, V.A.T.S., rather than at full value.
       If a full power of sale in the life tenant Is insufficient
to allow a valuation of the property at full value, we do not
think that a power to dispose of the property by will, or the
right to receive part of the principal of the trust, could in
anywise effect an increase in valuation of the property so held.
We therefore conclude that the provisions of Article 14.08 must
be followed in computing the inheritance taxes due from the hus-
band.
       Where a power of appointment is given to one who has a
life estate in the property, and the estate in remainder is lim-
ited over to a designated person or persons in the event that
the donee shall have failed to exercise the power, the takers
thus designated have an estate which is vested in interest or
descendible, devisable and alienable, although their enjoyment
of the property is contingent upon the donee's non-exercise of
the power of appointment. 33 Tex.Jur. 759, 760, Powers, Sec. 3.
The contingency, therefore, which confronts the decedent's heirs
in this case is one which may defeat their existing right to the
remainders here involved, but is not one upon which the origin
of their right depends, nor does it prevent the remainders from
      vested ones. Southern Pine Lumber Co. v. Arnold, 139 S.W.
     Tex,Civ.App. 1911).

1/     Article 7123 (now Article 14.08)   reads as follows:
             "If the property passing as aforesaid
          shall be divided into two or more estates,
          as an estate for years or for life and a
          remainder, the tax shall be levied on each
          estate or interest separately, according to
          the value of the same at the death of the
          decedent. The value of estates for years,
          estates for life, remainders and annuities,
          shall be determined by the 'Actuaries Com-
          bined Experience Tables,' at four per cent
          compound interest.'
Honorable Robert S. Calvert, Page 4          Opinion No. WW-1419

       We quote the following excerpt from Commissioner v. Carde-
za's Estate, 173 F.2d 19, 27 (3d Cir., 1949):
             I,     the predominant view in this
          coun&?y generally, risl   that in the
          absence of an express contrary intention,
          a legacy In default of appointment vests
          in the legatee on the testator's death,
          subject to be divested by the exercise
          of the power. . . .'I
Cited In support of this statement are the following authorities:
            "In re Freeman's Estate, 1908, 35 Pa.
         Super. 185, approved b the Supreme Court
         of Pennsylvania in 192% , 281 Pa. 190,
         126 A. 270 and In 1924, 280 Pa. 273, 124
A. 435; Lewis v. Rothensies, 3 Cir. 1943,
         138 F2d 129, 132; Lincoln Trust co. v.
         Adams, 1919, 107 Mlsc 639, 177 N.Y.S. 889.
                of Lansing, 1905, 182 NY 238, 74
         bl;t;te;
                  See also Restatement, Propert
                                                5;
         19365 (3) (1940); 41 Am Jur, Powers g t?
         3 Tiffan   Real Prop. 8 679, p. 10 (3rd
         ed. 1939t11
       We are aware of the fact that for some time the trend In
death tax cases, both those involving State taxes and those in-
volving Federal taxes, is to reach a decision based on the reall-
ties of a fact situation, rather than on the niceties of the com-
mon-law conveyancer's art. In other words, taxability is not
determined by the nature of the Interest transferred, as for
example, whether it be2vested or contingent at the time of the
creation of the right.   Furthermore, it is not necessary that
the beneficiary or heir be guaranteed an absolute right to future
enjoyment of property in order for the privilege of its receipt
to be subject to an inheritance tax. One of the most obvious
examples of such a fact situation is the one involving the usual
life estate with remainder over to named individuals. In such

"Taxation of Transfers Intended to Take Effect in Possession Or
Enjoyment at Grantor's Death", 14 Minn. Law Rev. 453, 462, citing
Saltonstall v. Saltonstall         276 U.S. 260, Chase Nat'l.
Bank v. United States             U.S. 327; Reinecke v. Northern
T-r.Co. (1928), 278 U.S. 339.
Honorable Robert S. Calvert, Page 5            Opinion No. WW-1419

cases the tax is imposed upon the privilage of the remaindermen's
receipt of their interests, even though, in fact, they may not
survive the life tenant. Since nothing in the statute authorizes
postponement of the paymegt of the tax to determine contingencies
or conditions subsequent, and since the decedent's heirs have a
vested right in the remainders subject to being divested by the
exercise of the power of appointment, you are advised the remain-
der estates should be distributed to the decedent's heirs for
inheritance tax purposes.

                           SUMMARY
            Where life estate is coupled with a special
      power of appointment with a limitation over to the
      decedent's heirs in the event of default in the
      exercise of the power, inheritance taxes should be
      computed on the basis of the value of the life es-
      tate and the value of the remainder estates of the
      decedent's heirs.
                                      Yours very truly,
                                      WILL WILSON
                                      Attorney General of Texas

MMcGP/jp
APPROVED:
OPINION COMMITTEE:
How~ardW. Mays, Chairman
W. E. Allen
Arthur Sandlin
Robert T. Lewis
REVIEWED FOR THE ATTORNEY GENERAL
By: Leonard Passmore

Bethea v. Sheppard, 143 S.W.2d 997 (Tex.Civ.App. 1940, error ref.).