Court Opinion

ID: 4137814
Source: CourtListenerOpinion
Date Created: 2017-02-18 02:29:15.385446+00
Date Added: 2024-06-11T14:36:24.975792
License: Public Domain

THEATTORNEY                      GENERAL
                                OF TEXAS
PRICE  DANIEL
ATTORNEYGENERAL
                             December    9, 1949

   Hon. Robert 8. Calvcrt               Opinion No. V-958.
   Comptroller   of .Public Accounts
   Austin, Texas     :                  Re:   Exemption of certain    tesi-
                                              mentary trusts from    inher-
                                              itance taxes.

   Dear Sir:

                You have requested the opinion of this office “with re-
   spect to the taxability of a bequest under Paragraph IX (b) of the
   last will and testament of Frank Hays McFarland,    who died a res-
   ident ef Tarrant County on I&LY 7, 1946.”

                From the file attached to your request we are given the
   following facta.   On July 2, 1947, Frank   Hays McFarland    and his
   wife, Carrie E. McFarland,     executed a joint, mutual and contrac-
   tual will which has been duly probated as the Last Will and Testa-
   ment of Frank mys McFarland.         Carrie E. McFarland    has duly
   qualified as Independent Executrix,    and at the time the instrument
   was admitted te probate reaffirmed      the agreement  contained in the
   will to accept under it and in all things to abide by its terms and to
   continue it in full force and effect as her Last Will.

                 The will is a nineteen-page    instrument which provides
   in substance that at the death of either party all property of both,
   with certain stated exceptions,     is to go to the survivor as trustee
   in trust for life, the trustee to have full powers of management       and
   disposal and the right to use the income from all property for life;
   and at the death of the survivor,     the remainder   of such property
   and all other property of every kind or character        owned by the sur-
   vivor or in which the survivor had’any interest,       with certain stated
   exceptions,   are to pass to and ves,t in the Fort Worth National Rank
   d Fort Worth as truetee for the uses and purposes stated in the
   will.  The brdt as trrratee is given stated powers of management of
   &e cerpmn ef the trust which is to be at all times maintained intact.
   The net income from the trust is to go to the Rector, Wardens and
   Vestry   of St. Andrew’s   Episcopal   Church of Fort Worth “as that
   b&y shall be constituted at the various times the actions . . e prod
   vided for are to be taken,” said body to have full power and euthord
   ity to dispose of the net income of the trust in accordance       with the
   previsions   of the will.
Hon. Robert   S. Calvert,    Page   2 (V-958)

              Paragraph     IX of the will reads,    in part, as follows:

              “(a) Forty-five     per centum (45%) of the net
      income from this trust shall go into, and constitute
      the ‘McFarland     Day Nursery       Fund’ to be used for the
      care of underprivileged       children residing in Tarrant
      or Parker Counties,       Texas.    Said,Fund shall be han-
      dled and expended by, or under the direction of, the
      Rector, Wardens and Vestry of St. Andrew’s               Episcopal
      Church of Fort Worth, Texas; and. to the greatest ex-
      tent by them from time to time considered              feasible,
      shall be used and expended by contributing             to the sup-
      port, maintenance,      development     and improvement          of an
      institution, or institutions,     such as The Day Nursery
      Association    of Fort Worth, Texas. : But we desire and
      direct that, to the extent said Rector, Wardens snd Ves-
      try of St. Andrew’s      Episcopal    Church of Fort Worth,
      Texas, from time to time may consider practicable,
      they exercise    reasonable     supervision     over any institu-
      tion to which contributions       are made.      If said Rector,
      Wardens and Vestry of St, Andrew’s            Episcopal Church
      of Fort Worth. Texas, consider it wise and judicious,
      they may, and are hereby granted full power and author-
      ity to, ~acquire by purchase,      or otherwise,      suitable prop-
      erty, or properties,      and thereon operate a Day Nursery,
      or Day Nurseries,      or a similar     institution or institu-
      tions, for the care of underprivileged          children living in
      Parker or Tar~rant Counties,         Texas.

             “(b) Forty-five~per     centum (45%) of the net in-
      come frbm said trust &all be used to aid young men
      and young women who are residents          of either Tarrant
      County m .Parker County, Texas, to secure .m educa-
      tion or vocational training.      This aid shall be granted
      by long-term,    low-interest    loans to the young men and
      young women selected       as hereafter provided.       Such loans
      maybe     made to minors.     The portion of the income from
      the trust created hereby which.is to be used in this way,
      and all~repayments     of loams and interest thereon, shall
      constitute a fund to be known as the ‘Eddleman-McFar-
      land Fund. ’ This fund shall always be conpolled           and
      managed ~by the Rectors,      Wardens and Vestry of St.
      Andrew’s    Episcopal   Church of ~.Fort Worth, Texas,,as
      that body shall be constituted at thevarious         times the
      actions hereafter    provided for are to be taken. We wish
      and direct that eat all times approximately       fifty per ceat-
      twm (50%) of the sums available for loans be loaned to
      young men rnd young women residing in Parker              County.
      Texar. and approximately       fifty per centum (58%) to
Hon. Robert   S. Calvert,   Page 3 (V-958)

      young men and young women residing in Tarrant Coun-
      ty, Texas,    In selecting  residents   of Parker County,
      Texas, to receive such loans, wewish and direct that
      the Rector, Wardens and Vestry of St. Andrew’s          Epis-
      copal Church of Fort Worth, Texas, consult with and,
      to the fullest extent consistent    with the policy estab-
      lished by them, be governed by the recommendations
      of a committee     composed   of those who are, at the time,
      the County School Superintendent        of Parker County,
      Texas, the District     Judge of Parker County, Texas, and
      the Rector of All Saints Episcopal      Church of Weather-
      ford, Texas.    We also wish and direct that all young
      men and young women securing loans from the Eddle-
      man-McFarland       Fund be~required    to attend an institu-
      tion in Texas if the educational or vocational      training
      sought can be obtained in a Texas institution,      and that
      at all times said fund be administered       on a wholly non-
      sectarian basis, ‘without distinction or preference       be-
      cause of race, religion or sex. n

             Paragraph IX (c) allocates the remaining    te’n per cent
of the net income to the Rector, Wardens and Vestry of the St. An-
drew’s Episcopal    Church of Fort Worth to be used in defraying man-
agerial and clerical  expenses incurred in administering     the two funds.

               The trust is intended to be perpetual, and provisions     are
made for changing conditions land termination       of the trust if “it shall
be judicially   determined by a. District Court of Parker County, Tex-
as, that it is not feasible or practicable   to continue” it for either of
the two purposes above set out. In this event all funds and property
in the trust are to go outright to religious,   educational and charita-
ble institutians   in Tarrant and Parker Counties,     Texas.

              We quote from    your   letter   requesting   our   opinion:
              II
                I . s this bequest /Paragraph      IX (b)fis not to a
      religious    or charitable   oFganieation and tl!i’Gonly ques-
      tion is whether or not it is for the use of an education-
      al organization     and is to be used within this State.    The
      will is not specific    that it must be used within this State,
      but it can be used outside the State in case the type of
      training desired is n&available         within this State,

              “As we interpret paragraph IX (b) the bequest is
      simply ,a loan fund administered  by a church.     Theoret-
      ically, the fund is supposed to be self-perpetuating,     All
      funds loaned are expected to be paid back by the individ-
      uals to whom they are loaned,    The only way the educa-
      tional feature comes into the picture, is that the money
                                                                                 .

Hon. Robert   S. Calvcrt,   Rage 4 (V-958)

       is being loaned for the purpose of obtaining an educa-
       tion, No educational  organization has any right in the
       fund itself.

              “The argument is advanced by the attorney for
       the estate that this is identical with bequests often made
       to educational institutions,    to be used by them as a loan
       fund for needy students.      This, of course,   is not exact-
       ly correct.   In the latter type of cases,    the bequest is
       to the educational organization.      In the instant case, the
       educational  organization    has no claim whatever on this
       trust fund.

              ‘In v.iew of the fact that,we are uncertain as to
       how this bequest should be treated, and also at the re-
       quest of the attorney for the estate, the matter is being
       referred   to you for your attention and reply.”

            Article   7332, V.C.S.,  provides an exemption from hher-
i&no. taxea for “property passing to or for the ume of the United
States er any raligioua,   educatienal or charitable organiaation when
such bequest, devise or gift is to bc used within this State. n

              We thinhthat the funds established by Paragraph             IX
stand,on the sarpc footing on one essential       point. That is, we think
it necedsary    to first determine whether the establishment          of this
trust can come ,within the statutory     exemption which is allowed when
property gasses      “to or for the use of religious,   etc.,,.organisations.”
If the property    cannot be regarded   as having passed to or for the
use oft such an “organization”,     no part of the trust estate is entitled
to exenaption.

               There are ne Texas cases in point, but numerous deci-
sions frem ether jurisdictions        deal with the problem of whether
similar bequests are within variously         worded exemptive provisions.
Where the statute prevides for a deduction or exemption of prop-
erty passing to religious,      educational or charitablc.insti~tutions    or
corporationsif      in generally held that the bequests or devisea must
be made directly to such institutiona or corporations.           See In re
Price’s  Estate,     192 Wis. 580, 213 N.W. 477 (1927), and In rz’s
Estete   83 In& A. 371. 147 N.E. 297 (1925).         Even under ----ma-
                                                                   a s
~‘type,         however.   the highest court of Indiana allowed an cxemp-
tion for property paaring te a Trust Company where the will of the
decedent created      ldtninietrative   or .gevrrning beards through whem
the educational ad chariteble bequests were to be distributed,
Crittenbergar     v. State Savings k Trust Co., 189 Iud. 411, 127 N.E.
               The coart regarded the Trust Company as a mere agent
through whem business        was .,to be transacted  and held that the trrs-
tee in cenjonction with the boards named in the will censtitrted           “a
governing body,” of educational and charitable institutions witbin the
meaning d the statate.
Honl Robert    S. Calvert,    Page   5 (V-958)

              Under our inheritance      tax s.tatute the exemption allowed
for charitable,    etc., bequests is not limited by a requirement        that
the property pass directly to a corporation         or institution, but is al-
lowed if the property passes to or for the use of a “religious,          edu-
cational or charitable     organization”   when the “gift is to be used in
this State.”    In this respect our statute is similar to the one dis-
cussed in In Re Lynch’s Estate, 72 N.D. 48, 4 N.W.2d 591 (1942),
wherein the court held that the mere delivery of property to a trus-
tee did not prevent deduction of the legacies sine;          thk bequests and
legacies were not for the use of the trustee but were for the use of
certain charitable,     educational and religious     institutions.

               The net income from the McFarland     trust is to go to
“the Rector, Wardens and Vestry of St. Andrew’s       Episcopal   Church
of Fort Worth” to be expended as provided in Paragraph IX of the
will.  If this group can be deemed a “charitable,   religious   or edu-
cational organization”    within the meaning of the statute, the busi-
ness management      and control of the corpus of the trust by the Fort
Worth National~Bank will not result in a loss of exemption.

             ,,The Supreme Court of California   in In Re Irwin’s Es-
tate, 196 Cal. 366, 237 Pac. 1,074 (1925), held that a devise to named
Etees     was a devise to an “association   of persons,”     The control-
ling portions of the applicable cxemptive provision      in the’california
Act read as follows:

              “(1)  All propierty transferred        to societies;   cor-
      p&ations,     and institutions now or hereafter exempted
       by law from taxation, or to any public corporation,              or
        to any society, corporation,      institution,    or association
       of persons   engaged in or devoted to any charitable,            be-
       nevolent, educational,      public or other’ like work . . . or
        to any person, society,      corporation,    institution,  or as-
       sociation of persons in trust for or to be devoted to any
       charitable,   benevolent,     educational,   or public purpose,
      ,:by reason whereof any such person or corporation               shall
       become beneficially       entitled, in possession      or expect-
       ancy,. to any such property or to the income thereof,
       shall be exempt; provided, however,            that such society,
       corporation,    institution or association       be organized or
       existing under the laws of this state or that the prop-
       erty transferred     be limited for use within this state.”

By the terms of decedent’s     will $ l,OOO,OOO was to go to certain Pained
trustees,   their survivors  and successors    in perpetuity, the sum so
held and managed by them to be known as “the William G. Irwin Char-
ity Foundation. ” The trustees were to use the net income for stated
charitable   purposes.    The court first pointed out that the statate did
not require that the charity be a corporation      and held that the “Foun-
dation” created by the will ,aptly answered the description       of an “aed,
sociation.”    The usual meaning of the term “association”,      said the
                                                                                .   .

Hon. Robert   S. Culvert,   Page 6 (V-95g)

court,  is “an unincorporated     organization,  composed of a body of
men, partaking in its general form and nude of procedure             of the
cbracteristfcs     of a corporation   . . . . There can be no question
but tkat the organisation    ef the txustees into a permanent associe-
tion was contemplated     by the testatrix and luthorked by the terms
of her witl.”   Under the will the trustees bad full management          of
the endowment fund and were therefore clothed with functions and
vested with powers similar to those of a corporation in that they
were impowered to invest aed reinvest the funds and pay out the
income for the purposes which the tertatrix        had ia view.    They were
also required to keep records, etc., and were authorized          to make
by-laws   for the government     and adminlrtration    of the trust.    Thus,
said the court, the complete organiuation       provided for in the will
became rt’the death of the testatrix eo instante vested with the cor-
pus of the tr.urt.

           ,,’ InIx Rc Curtis’ Estate,  gg Vt. 445, 92 A. 969 (191!5),
the court was concerned uiith wh4       F a board of trustees csnsti-
tuted a “society”.    The decedent had devised and bequeathed to three
named trustees a remainder     iaterest  in all the rest and residue of
her estate to be used for purposes stated in the will,     The trustees
had full power to manage and invest the corpus of the tr,ust.

pointed
              The parties named in the will were nominated
         as trustees,
                                                                  l
                                                                  n; ap-
                       had duly qualified, ,and had organized by elcct-
ing one of their number ao president,     another as vice-president,
and another as treasurer,      They had also elected en assistant    cash-
ier ef the Merchant’s    National Rank as clerk of the Board efTrus-
tees.  All trustees were officers   of seid bank and a11busiaess re-
lating to the trust was to be transacted by the bank.

             The Vermont stitute exempted frem tax “every chari-
table, cducatio~l  or religious society~ or institutien . . ~ created or
existing under and by virtue of the laws of this state and having its
principal office herein. . . ,”

              Several arguments were advanced in support of the prop-
osition that the particular   transfer did not come within the exemp-
tion provision.    First it was urged that the statute should be strict-
ly construed against those claiming,exemption.        The court held t~hat
althoughthis    wes the rule asaaplied   to general taxation, it wss not
applicable,  since tke taxation of inheritances   is l special form of
tnation.    Next the court rejected the contention that the words “cre-
ated er existing under . . ~ the laws of this state end having a prin-
cipal office herein , , .,I’imported a corporation.      :

               In determining    whether the beard of trustees under the
will cenatituted    a charitable  or rducatienal  society or institution
within the meaning of the statute, the court said;
Hon. Robert     S. Galvert,   Page   7 (V-958)   ,,

                “A ‘society’ has been defined as an association
        or’ company of persons united together, for any com-
        mon purpose (36 Cyc. 499); also as a .number of per-
        sons united together by mutual consent in order to de-
        liberate,  determine,    and act jointly for some common
        purpose (2 Bouvier’s      Law Diet. /RawleE Rev.7 1010).
        Persons    thus associated   for a piirpose that ischarita-
        blc would, ex vi termiiri, be a charitable       society. It is
        evident that the Legisluture     intended that the word
        ‘society,’  as used in this statute, should include ‘bodies
        of men united for the advancement        of religion and learn-
        ing and for other pious and charitable, purposa~s,’ thus
        recognizing    the duty enjoined upon it by the Constitu-
        tion to encourage    such associations.”     (p* 968)

                With regard to the fact that the “society”      was formed
after   the ,.dacedent’s ,death the court said:

                “If the individuals named in the will as trustees
        had voluntarily    associated    themselves    for the purpose
        of collecting funds to aid needy boys and girls in secur-
        ing an education, or if the legacy in question had been
        given as a foundation of a society thereafter         to be formed
        for that purpose, pnd they had associated         themselves    in
        accordance     with the provisions     of the will to receive the
        legacy, no one would que.stion but that in so doing they
        had formed a charitable       associations or society.    In that
        case their right to receive a legacy for the purpose of
        their association    would not be taxable under the stat-
        ute in question.    We think it is unreasonable       to say, be-
        cause their association      is effected by the will, that the
        fund provided by the bounty of the testatrix        shall be de-
        pleted to the extent of the tax. The state can well af-
        ford, considering     the purpose to which the money is de-
        voted, to let it pass untaxed; and we are loath to believe
        that the Legislature     intended to take toll of benevolences
        calculated    to supplement the state’s efforts in the cause
        of education, or to .give such a construction        to the stat-
        ute es would tend to- nullify its manifest policy in this
        regard,,:so   long as the language ,of the statute does not
        compel it,

               “We hold that under the provisions    of this will
        tha board of trustees are a charitable   society within
        the meaning of the exemption clause of the statute....”
        (P* 968)
Hon. R&err       S. Calvert,     Page 8 (V-958)

               There is no appreciable difference   between the were
“association”,    “society” and “organization”.   The word6 are ire-
quently used interchangeably     in common prlance,     and appear,  ei-
ther specifically    or in some varia&ion of the root farm, in defkit46ue
as explanatory of each other.

                 Webster’s     New International      Dictionary,   2d. Sd.,   @es
the following     among      its definitions   of “organization”:

                 “3.    T&t which ia oreniced;   an organism; any
        viwlly   or    syotemrrtic&lly organic whole; an association
        d   prbona,      es in IL ckb.

               “4. The executive structure of a busincsa; the
        personnel of management, with its several duties aad
        plrceo in Ministration;   . . . .*

             Bouvier’s   Law Dictionary, Rawle’s Third Revinion,                 in-
Cl&id+6 the fOllowiBl( rkfiniti0Il of “assOCiatiOn”:

              “An or adsed union of pcroons for a common
        purpose; a*   y 0 persons acting together for the pro-
        motion of some object of mutual interest or kdvantage,
        Cent. Diet.”

             And a “society” is dcfinwd a~) "an association or com-
pany of persons united together ~for any common purpose. ti 1~ Re
Curtis’ Estate, aupra.

             We think that the reason@   of the courts in the Caii-
farnia case and in the Vermont caoe is applicable to the provision
of our statute and that the property which will go to the fundr pro-
vided for in Paragraph IX of the will may be regarded as passing
“for the use of” an “or8aeiaation”.

             We will,now   comidcr the specific questions which you
raise  with regard to the “Eddlernan-McFarland      Fund” provided  for
in Paragraph   IX (b) of the will. As lppscars from the&WA-l*      quoted
portion of the opinion of the court in fn~Re Curtis’ Estate, nupra,
t&c trust there provided for the distrbution   of funds to aid needy
boys and girh in securing an education. Both parties in this case
bad presented argument8 baaed on the theory that the questioa was
whctbrr the bequest was to any “educational” society or institution.
T&e cuurt stated that this was too lyarrow a view of the question and
held thbt the fund wae maaifeatly devoted to charitable purperea.
This holding is in accord with the weight of authority.   We de nbt
think that the low interest loan scheme provided for in Pasagraph
IX (b) of the will makes the purpose of the testator or the character
of the organization  which will effectuate that purpose any less char-
itable.  The sple question remaining is whether the fret that tie
_

    Hon. Robert     S, Calvert,   Page   9 (V-958),      ,.

    funds may be expended outside the State            in securing   training     in
    certain instances will result in any loss          of exemption.

                   It has been said that the purpose behind legislative                ex-
    emptions from inheritance           taxes of bequests ‘to charitable        institu-
    tions is to encourage      liberality     on the part of those testators        whose
    means permit them to indulge their generosity                 in the line of pro-
    moting the public good by contributing             to the cause of charity.        In
    Re Clark,    131 Me. 105, 159 A. 500 (1932).            The public is thu,s 6en-
    efrted directly    in the benefit conferred         upon its citizens,    and further
    indirect benefit is found in the c,onsequent reduction of the State’s
    burden, of caring for and advancing, the interests~ of its eitine,ng.                34
    A.L.R,   634, 635.     The reason for limiting such exemptions~to                char-
    itable organizations      who will use the funds within the State is there-
    fore readily apparent.        “‘It is the policy of society to encourage            be-
    nevolence    and charity.     But it is not the proper function of a ,atate
    to go outside of its own limits, and devo.te its, resourced              to s,upp,or,t
    the cau,se of religion,     education,     or missions     f,or the benefit of man-
    kind at large. ” Inure prime,           116 N.Y. 347, 32 N.E, 1091, 1045 (lg93).
    In Morg4q vI A.T. h ‘5.m            yo Cp,,,, (116 &an. ;I%, 225 P. 102’,9,,tD31~
    (14241 , the court said:

                    “Taxes must be raised for the support and con-
           duct of the governme,nt.     Exemption       to charitable,     edu-
           cational and religious    organizations       is bottomed upon
           the fact that they render service        to the state, for which
           reason they are relieved      of certain    burdens of taxation.
           The effect of an exemption      is equivalent      to an appro-
           priation     It cannot be said to have been the intent of
           the legislature    to make appropriation        for benefit or
           maintenances of foreign charities,        which, at best, have
           a remote chance only of benefiting         the citizens     of this
           state.“

                  We think that the foregoing          authorities   have correctly
    stated the purpose and scope of the type of exemptive                provision
    which is found in our statute,         Viewing the bequest in the light of
    these statements     it is clearly    exempt,      The benefits    directly   con-
    ferred are conferred       upon citizens      of the State of Texas,       To the
    extent that it aids these citizens        in gaining an education and in thus
    fitting them for discharging        the duties of citizenship,      it has corre-
    spondingly reduced the State’s         duties in that respect      and has indi-
    rectly reduced the amount of the individual taxpayer’s                obligation   in
    support of this duty; These being the real benefits              which will re-
    sult from this charitable      bequest,     we do not think that the exetnp-
    tion is lost by incidental     extra-state      expenditures    to accomplish
    these benefits   in those instances        in which proper training cannot be
    had within the state,      You are therefore        advised that the bequest
    made by Paragraph        IX (b) is exempt from inheritance            taxes,.
                                                                                .   -

Hon. Robert   S. Calvert,   Page   10 (V-958)

                               SUMMARY

             Where the residue of an estate passes to a bank
     as trustee, the income to be expended as directed in
     will by the Rector, Wardens,     and Vestry of a church,
      the property passes for the use of an Yorganieation*
     within the meaning of Article     7122, V.C.S.     Under terms
      of trust, provision for long-term    low-interest    -loans to
      Tarrant and Parker Counties’ boys and girls to ass,ist
      them in getting an education is charitable      in nature, and
     is exempt from Texas inheritance        tax. In Re Curtis’
     Estate, 88 Vt. 445, 92 A. 965 (1915).      hkemption from
     ‘qance        tax is not lost by possibility   of extra-state
     expenditure    of borrowed funds if traininn not available
     in Texas.

                                                Yours   very    truly

                                     ATTORNEYGENERALOF                  TEXAS

                                                    Assistant

I&fC/mwb

                                     APPROVED

                                   TL       24
                                     ATTORNEY       GENERAL