                                                                               ‘,
                                                                                          IYS



              OFFICE    OF THE A~ORNEY   CWNERAL           OF TEXAS
                                  AUSTIN




gonon        @8oPga a. aheppard
Corrptrol1.l. of ?ublio Aooountr
lrtutln 11, TOxaB

mr    air1                            opinion   lo.   o-6641

                                      Ret   Inolu8ion    for    lnherltarroe        tax




nquert  I8 oocarIot¶ed by 8 oontrovo
the attortter for the fnto1v.d orkt
thereto 8 latter  Troll the 8tt
latter inn Jolw rupre8entatl

                                                                la ent
                                                                     88to.
th efa c t*.     o n7 0
fo r th ebatefit      0
th o nlnth 8     p r tvl
b enefIo I8r        tqler
th a otfo th o n.
                                                               indup 8ttd  di8-
                                                               h pM'ti.8). di8-
                                                            dlmoted   that
                                              ould ulnd up and dirtrihuts
                                              On April 15, 1929, the de-
                                            t arationed and inrtructed
                               fir8t and b8t”    distribution   to hIa five
                             th811- entln   Interest    In the trust.   Such
                             led out, and the~reafter the vlfs      remained
                            of the tX'U8t. -The decedent died on Decem-
                             the property plaoed in the tN8t Ya8 at
                            for oommunIt~ pnportJ.

           line dlsagmomnt   as to the inOlu8iOn for inheritance
tax purpose    in decedent@o gross ertate  of the fund8 remaining
in the truot arlroa under Article    7117, V. A. C. 3., the pertl-
nent part of vhlch is quotedr
                                                                                             . ~1!30

moreble              Oeorge H. Sheppard,        page 2



             "All p.FOpOetJ Within    the  ju?i8diotiott Of thI8
         -btate,
               ml     or penon     , oorporste or lnoorporate,
   '~ ili&'~kfintik'tt~t thO?dil,     ittOlUdillg p?OpO?t~ p8-
  -“sitt&   UTtdU l ~   tte?aPlOW?OflppOtibUlt          UUOi8ed
      by the dewdent br ~111, inoluding the p?OOUd8 of
      life in8Ulmae'tO       the Utent    Of th. -0Ultt lWOeiV8-
      ble br thoiexeoutor o r lhlnlstrator         a8 ln8uxwioo
      @or     pOliOiO8'~ taken out by the dooedont won hi8
      ovn life, and ‘to the lxteat of tbo uoe8s         over Fort.7
      mousukd     b13AF8    (~~0,000) Of th. -t        noel~ble
      br ail OthW      knefiOude8      a8 itM?UtOe    UDdO? PO&
      01.8 taken out     by the decedent upon hI8 own life,
         vhother belwias              t0   -8ihnt8         Of    thi8    Stat0        Or
      to penons who are not Inhabitits,   regmdl.88   of
      vhether 8uOh property I8 lowted rlthia Or rithout
      this Mate, wbloh 8h11 #88 lbrOlUuk1Y Or in tNSt
     .br Win  OP-bJ th. hV8  03 d.80~TV Or ai8t+Ation
      of this or ear othor Mate,  or by deed. gtwnt. rale,
      or gift rdo  or intended to V
      81oII O?lnjOWnt   after the duth  Of th@ MtOl'     Or
         a-O?,        8bii,    UpOa   p888uIg        LO O? rO?    th0 \UO        Of    w
         p O?SO&OO~O~tiOn,                 0,
                                            l88OOirtiO&           b8    8UbhOt         t0
         b tu        for   the 89ttesit 0f th8 8kteG              h0-i           ~k~enue
         p Ull&
             in
              lO,
                O~?d&
                   lfith ttO   O
                         the fOl.lOVing OlB88ifiCt&-
                 .     . . .    (hpb818         UidOd)

                 ?h 0lttO?tiO7 fO? th0 08-k   OOtthtd8 uUt  iIt O?dO?                       iO?
8' ttWtSrO?       to 0~8titUtO   0110mad. or latondod to take Offoot                        In
pOSSe8SiOZi   or enjoyment after    the death of tbo grultor      or donor,
vlthin   the m8nIa#   OS the above-quoted Artlole, it 18 neoessar7
tbat   on. ,of the folloving oondItIons must obklnt          ‘(1)   The
@Unto?    Or 8OttlOr m8t   hVe    nsenod      8a inOolP0 fraP the traas-
ferred property for his or her life          so that the tXUtI8fer Is not
complete until donor’s    dsathj or (2j The rights of the benefi-
ciaries must be oontlngent uponstheir         surviving  the &a&or      or
settlor   of the trust,  ln vhlch case It Is the death OS the grantor
or settler vhlch fixes the rights        to take or rucoeed to the trust
estate.’    Further,  the attorner argue-t           the mere fact that VI-
der the terms of the trust the trustee oannot be required to dls-
tribute to a beneficiary    all,   or part, of the trust corpus until
a date subsequent to donor’s      death vhere the rights of the bene-
ficiary   are   fixed and definite”     does not operate    to oonvert a
transfer   to a trustee othervise      completed In all respects     prior
to dOnOr'8 death into one made or intended to take effect            after
the death .of the donor.
    gonomble        Oeorge 11. Sheppard,        page 3
1


                Ott the other band, the repnsentatlve   of the Comptroller’s
    prpmtmnt     contend8 that the f8ot that the vlfe’r   rights had be-
    owe fixed and definite     I8 not the d8018Iv8 qUe8tIOn but that the
    fact that  pe88O88Im and l   njOm8nt VOl’e vlthhald Utltil the hus-
    b8ud’s death or that th8 husbrupd’8 death va8 the event vhloh gave
    the Vii8  ~8SO88itX    Uld -jOJneZbt rhould ~OvOm.

                    It   ha8 ken  noted that In,8upport    of his pro~orltlon
    tbrt   the right8       of the vii0 becae            rmd
                                                        end deflnlto    nth    droe-
    dent’s    exerclee      of th8 above-mentioned privilege,     the attorney
    oltes     the as88     of I. P. Bumey t8.   ConI8slon*r    of Internal    Rev-
    enue (4 t.   C. 449).   &  thi8 ?8gUd,               It    MT      g?UttOd th8t
                                                                     hr?@      88
    th8 tN8t   in Question Va8 Irrerooeble.                    Although        tbI8
                                                                          18 a mate-
    rlA1 oon8lderatUm     under the Fedeml              x8tate Tax frv (Tit10 26,
    II. 5. C. A., 36           811 (d)),   it   18   not lmportut  in d8termlnky
    the l pplIaabIlIt~         of the   %x&r    8bhIt8        (808   ini’m).


                    Fhe lwdlag
                           judloial   lnterpnt8tIon        of the above-quoted
    Statute    lS
               it 8ppiIOS  t0 the fact8    in ttl. i.MtUlt     -88   VO8  b
    the Court of CIvIl Appeals of Austin in Bethea t8.           ISheppard t 143
    S. Y. (26) 997~-ernr     refued)    . FrCn  thi8   OpfniOtt    th 0lttOITLOJ
    has quoted, but not fully.       In thla aas8    the Court, dnvlng      from
    the deolslons   of other 8tatos, prescriber       a test for taxability
    under the 8trtUt*,    dOtin88 “pO88O88iO11    Of                 l
                                                       ZhnjO~llt", 8tit88 th8
    dlstlnctloa   betveen the Federal tstate tsr kv and the Texas Rat-
    ute, and treats specifically      vlth an Irrevocable       trust.   Contrary
    to the lttomey’r     0aMentIon that tbls oa8e I8 Inapp~Ioable           here,
    the foll~ving   a         of the Court I8 demed partloularl7           pertl-
    nentt

                  ‘And In R. blhttder'8      z8trt0,   123 1.J. 7.&2,
            195 A. 805, 808, the oourt rtate8 generrllyt
            test of taxablllt~     1s not the time of the ccaplete
            divesting    of the transferor’s    interest  or ovnershlp;
            it is the the of the complete succession by the
            transferee.     Where there is -a transfer    of a speoiflc
            interest    In property and the succession of the tmns-
            feree does not become, and under the tenas of the
            tmnsfer     is not to become, cunplete until a time at
            or after the death of the tmnsferor,         that transfer
            Is taxable.     “The distinction   l l l rests    on l l l
            whether the done8 Is deprived OF an Interest         of 8-e
            kind l l l until the donor'8 death.“’
Bonorable     Oeorge II. Sheppard, page 4



              “see, also, ?eople v. Hoses, 363 Ill.   423, 2
         I.E. 24 724; In m toy’s   Estate, 220 Iova 825, 263
         1.U. 5Oli and Xi~ball  v. rotter, 89 1.E. 234, 196
         A. 272, 274, vherein the oourt rtates   that 'the DOS-
         8888iOtt O? ltt~OYEOnt, Vithin  the 8t8ttttOrt IOaniqg,
         18  8UOh lS 18 lOtUa1 and l'U1. urd not 8UOh (L8 iS
         ?iheontIoal  or defemd.r       d that th   tax was to
         ho assessed on the value OFthe prop&         at  the
         death of the dooedent.
              "Me do not regard a8 neoe8ur~         a 1engthJ dlr-
       owslon     of the dirtinotion      recognir8d by the authorl-
       ties betveen the Seders1 estate tax and the Inherl-
       tame or sucoesslon tax levied by the various states.
      ~Suffloe It to ur that the fedenl            ertate tax Is im-
    .~ pored upon the right of grantor of tnnsferror              to
       tranrfor    property, and that the Inherltuoe          or suo-            ..
       oesslon tax by th8 state is impaled upon the right
       to noelve     or rucoeed to tho pO88888ia or enjoyment'            "     -:
       of property.      HO? 18 it lWO8888~       t0 dbOU88    the OO&
       fllct    of luthoritier    vlth respect to the distinction
       as to these tvo foms of taxe8.            und8r the Fedora1
       Estate Tax IAV, the primary question to detemlne              is
       vhen the decedent or gmntor parted vlth all property
       rights.     Under our State Inherltutce        or Sucoesslon
       Tax Statute,     the priasry question 18 yhether the
       transfer    vas mado or Intended to take effeot in po8-
       session o r l  njoment after       th8 death of grantor or
       settlor,    particularly     in ca8es of transf8r of prop-
       erty in trout.       It 18 not a quertlon of vhen        the
       heneflclal    interest    1s created. but tb8 tax Is fm-
      posed upon the rkht         to receive in Dossesslon O’Iw
      joyment after the death of -xrantor or settler.
       consequence, a grantor or settlor          may create an Ir-
       revocable trust durinn his lifetime.           rtlll  if he
      pO8tDOneS     the ritit    of DonS8SSion    or 8n~Osault of
      -the beneflclarr      y$&ll after UU&O~‘s        death. the



         joyment’ Is made contingent upon the death of grantor
         or settlor  of all or any part of the trust estate,
         such transfer  is taxable.   . . ~.” (lhnphas1s added)

              It 1s not deemed necessary to elaborate         on the appllca-
bllity     of the above-quoted portion of the Court’s         opinion to the
facts     in the present case.  It may be here noted,         hovever, that




                                  ..
                                                                   133
&,oorable George     8. Sheppard, page 5



8, the terns Of the tntrt   the tramfor va8 one %ade or latexxled
to ta&e rffeot la possession or enjoyment* at the election of the
#8ttlor.   Of the tvo 8lteraatIver rrallable   to hti, either (1) of
~qulrlng   the trust to be dfrtrlbvted In vhole or in part vhlle
living Or (2) Of $08tpOIhiry it8 dirtribution Until lftu hi8 death,
the decedent chose the latter.    Hi8 death Va8 the avant vhloh @ye
tie vlfe the “aotwl uad real” porr4rrlon or lnjomnt       rufflclent
to brlag the property vlthln the moope of Artielo 7117, V. A, C. 8.

          Aooordingl~, rou are adYI88d that it 18 the opinion of
thi8 0rfi00   that   0ru-haof the yalue of the trwt  a8 of the date
ef the death of the deoedoat 18 able     under tin Iaharltutoe Tax
Z&V8 Of wXa8.

                                           Tours very truly
                                           ATTORBXY   a       OF TXA3
