Honorable Robert S. Calve&          Opinion No. C- 64
Comptroller of Public Accounts
Capitol Station                     Re:   Computation of Inheri-
Austin, Texas                             tance Taxes on Royalty
                                          Interest of Life Tenant
Dear Mr. Calvert:                         Under Submitted Facts
       We quote the following from your letter requesting the
opinion of this office on the above captioned matter:
             "We desire the opinion of your office
          regarding the computation of Inheritance
          taxes on royalty interests of life ten-
          ants under submitted facts.

             "John Alexander Graves, Jr., died
          testate a resident of Tarrant County on
          October 9, 1962, owning a royalty inter-
          est under 612 acres of land in Jackson
          County, Texas. This royalty interest
          has a value of $40,000 based upon a
          twenty-four months payout.
             "Paragraph 4 of the will of the de-
          ceased reads in part as follows:
             "II bequeath and devise to my beloved
          wife, Nancy Kay Graves, for her life,
          all my interest and estate in my lands
          in Jackson County, Texas, . . . . con-
          taining 732 acres more or less of which
          I own the surface, and an undivided
          interest in the minerals in and under
          612 acres of said lands, my mineral
          interest not including Lot 11 thereof.
             "'In addition to a life estate, I
          devise and grant to my said wife a gen-
          eral power of appointment&over said
          lands and estates In Jackson County,
          Texas. This power may be exercised by
          deed or by will by appointment to whom-
          ever she desires, or to herself, her

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Honorable Robert S. Calvert, Page 2           Opinion No. C- 64


          estate, her creditors or the creditors
          of her estate for whatever objects she
          desires. Upon the death of my wife,
          should she fail to effectively exercise
          the power of appointment, I direct that
          the property shall pass in equal shares
          to my daughter, Nancy Ann Wynne, and to
          my son, John A. Graves, III.
             "'My said wife is to hold her life
          estate in said lands without bond and
          without liability for impeachment for
          waste, and is to have all the rights
          of the owner of a legal life estate
          including the right to possess and
          enjoy said property, to receive and
          use the entire income therefrom with
          power to dispose the principal and
          accrued or accumulated but undistri-
          buted income as she shall appoint.
             "'My said wife is to have full power
          and authority to use or to lease the
          surface of said lands for agricultural
          or commercial purposes and to make any
          use of the surface of said lands which
          she determines to be useful and profit-
          able, and to drill water wells thereon
          and use or sell the water found or pro-
          duced on said lands.
             "'My said wife is to have full power
          and authority to develop and produce
          any oil, gas, sulphur, gravel, clay,
          or other minerals on and under said
          lands, and to open new wells and mines
          and to market and sell all the products
          from said lands. She Is to have full
          power and authority to make and execute
          oil and gas leases, all easements,
          rights-of-way, surface leases, and to
          receive and use as her own property
          all bonus moneys, and consideration
          for same, all rentals, royalties, pay-
          ments out of oil or gas or other min-
          erals, payments for non-development,
          drainage or damages, and any and all
          sums due and payable in connection with
          the drilling and development and pro-
          duction of 011, gas, sulphur, or any
          other minerals from said lands.
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Honorable Robert S. Calvert, Page 3            Opinion No, C-64


             "'In the exercise of the power of
          appointment hereby granted, my wife
          may appoint life estates to one or
          more objects of the power with remain-
          der to others, appoint to grandchildren
          even though the parents of such ap-
          pointees are still living, appoint by
          deed or by will executed during my life-
          time or after my death.
             "'The above does not limit or re-
          strict her powers as holder of a life
          estate or as donee under the power of
          appointment above granted, and she is
          to own and hold said property as her
          own without restriction on her right
          to use, consume and dispose of said
          property.'
             "The surviving spouse and principal
          beneficiary has a life expectancy of
          nine years and therefore will consume
          all the mineral value, so we are attempt-
          ing to distribute this interest for inheri-
          tance tax purposes according to your rul-
          ing in Opinion No. 1063, . . . ,
             "Please advise whether or not the hold-
          ing in this opinion is applicable to the
          submitted facts."
       Opinion No. ~~-1063   was concerned with the following facts.
The decedent's will devised all her real property to her legally
adopted son for life to have the use and benefit of same as his
separate property, and upon his death, said real property was
to vest in such of his issue as he might by will appoint. The
will further provided for the disposition of the property cov-
ered by this devise In the event of failure to exercise the
power of appointment. There passed under this provision of
the will a royalty interest in the Old Ocean Field in Brazoria
County, Texas. The average monthly income from the royalty
interest was $6,300.00.    The mineral interest was valued at
$~~O,OOO.OO on a loo-month payout basis.
       The opinion stated that the life estate in the land
extended to the unsevered oil and gas beneath the surface. The
beneficiary, at the time of the decedent's death, had a life
expectancy of 36.7 years. Since he would receive the entire
royalty interest in 100 months, the opinion held that inheritance

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Honorable Robert S. Calvert, Page 4           Opinion No. C- 64


taxes should be computed on the entire value of the life ten-
ant's royalty interest, rather than under the provisions of
Article 14.08, Ch. 14, Title 122A, 20A, Tax.-Gen., Vernon's
Annotated Texas Statutes, which provides the statutory method
for computing the value of two or more estates, as an estate
for years or for life, and a remainder.
       We have concluded that we were in error In so holding,
and that Opinion No. ~~-1063 must be overruled in view of
zlfvert v. Thompson, 339 S.W.2d 685 (Tex.Civ.App. 1960, error
   . .
       In the Thompson case, the decedent's will contained the
following provision:
             "All of the rest and residue of my
          property, real, personal and mixed, I
          hereby give, devise and bequeath to my
          beloved wife, Cora Thompson, during her
          lifetime, with full power to sell or
          otherwise dispose of same, and at her
          death, to my children John W. Thompson
          and Ida May Thompson, share and share
          alike, in fee simple."
       The tax was assessed against the interest of Cora Thompson
and its amount was determined on the basis of the value of the
entire residuary estate. The court held that the fact that the
life tenant was given the power of disposal did not change the
estate into something other than an estate for life citing,
among other cases , Wier v. Smith 62 Tex. 1 (1884j;Edds v.
Mitchell, 143 Tex. 307, 184 S.W.2; 823 (19451, and authorities
cited therein. This, of course, had long been the established
rule in the jurisprudence of this state.
       At page 688, the court said:

             “L-23   The statute, Art. 7123,l supra,


' Article 7123, presently carried as Article 14.08, Ch. 14,
Title 122A, 20A, Tax.-Gen., V.A.T.S., 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 separ-
       ately, according to the value of the same at the
       death of the decedent. The value of estates for
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L       .h



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             Honorable Robert S. Calvert, Page 5              Opinion No. C-64

                         is plain In providing the method for deter-
                         mining the value of estates for life and
                         remainders and any other method of deter-
                         mining such values would violate the sta-
                         tute. For this reason the most probable
                         future disposition of the estate by the
                         life tenant would not be a proper Item to
                         be considered In determining the amount of
                         inheritance taxes due. . . ."
                       Since the Texas courts have held that valuation for ln-
             heritance tax purposes is unaffected by the life tenant's un-
             fettered power of sale, we think that we are bound to disregard
             the fact that in the instant case, as well as In Opinion No.
             ~11-1063,   the life tenant could receive the entire value of the
             royalty interest. Opinion No. ~~-1063     is hereby overruled, and
             you are advised that inheritance taxes should be computed under
             the provisions of Article 14.08.

                                      SUMMARY
                            Under submitted facts, inheritance tax
                      should be computed on life tenant's royalty
                      interest according to the provisions of Arti-
                      cle 14.08, Ch. 14, Title 122A, Tax.-Gen.,
                      V.A.T.S. Opinion No. ~14-1063 is hereby over-
                      ruled.
                                                Yours very truly,
                                                WAGGONER CARR
                                                Attorney General of Texas




             MMP/jP
             APPROVED:



             ' (Cont'd)
                    years, estates for life, remainders and annuities,
                    shall be determined by the 'Actuaries Combined
                    Experience Tables,' at four per cent compound
                    interest."

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Honorable Robert S. Calvert, Page 6   Opinion No. C- 64


OPINION COMMITTEE:
W. V. Geppert, Chairman
W. E. Allen
J. Arthur Sandlin
Ernest Fortenberry
APPROVED FOR THE ATTORNEY GENERAL
By: Stanton Stone




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