 -    .




           THE       ATTORNEY        GENERAL




Honorable Robert S. Calvert          Opinion No. WI&1348
Comptroller of Public Aoeounta
Capitol Station                      Rel    Taxability for inheritance
Auetln, Texas                               tax purposes of eurvIvor~0
                                            interest in eavings account
                                            held by survivor and a de-
                                            cedent a8 joint tenants
Deer Mr. Calvert :                          with right of aurvlvorehlp.
       Ho quote the following excerpt from your letter requesting
an opinion of this office on the above captioned matter:
              “The final inheritance tax report
          for the Estate of Nellie Cloyd, deceased,
          Dallas County, Texas+ 3.0 now before this
          department for final disposition,   and
          while making our usual lnvestigatlon   of
          the return, we find the decedent had a
          joint savings account with the right of
          survivorship with the Republic National
          Bank of Dallas standing In the name of
          the decedent and Varina McKinney, and
          to’which account Varlns McKinney had
          deposited $479.25; balance o? the ac-
          count at date of death was $5,027.66.
              “This department has included this
          account for inheritance tax purpooee,
          less the amount deposited by Varino
          McKlnney, . y .
             “Since this account still     remained
          In the bank upon the date of death of
          Nellie Cloy&, Varlna McKlnney did not
          come into possession and enjoyment of
          this account until death. Therefore,
          under the provisions of Article 7117,
          this account is lneludfble for lnheri-
          tance tax purposes.”
        You state that the attorney for the estate has objected to
the action of your department in including the account for lnhori-
tance tax purposesp and you have attached to your letter request-
;n&he     opinion of this offfoe a Ietter setting forth his objoc-..
      .
    Honorable Robert S. Calvert,    Page 2            oRlnloaWo. WV-1348

.
          The attorney’s position may be surmaarieed as follows.
    Attorney Cieneral I8 Opinion No. O-2850 held that where a deoedent
    had placed funds In a bank aocount In the name of the deoedoht
    or her daughter, upon which eltheP could draw oheokkr, that on’..
    the decedent’s death, the amount remaining In the bank acoount
    passed to the daughter in possession and enjoyment a8 a gift porn
    the mother, Intended to take effect after the mother’e death.
    Thereiore, the opinion held said amount to be eub)ot to lnhorl-
    tance taxes.   In the course of the opinion, the writer stated
    that he was unable to find where any joint tenancy use created,
    and that the daughter had received no vested interest In the
    money at the time the decedent had deposited if.
          Our attention   is directed   to the recent Supreme Court deal-
                                                                       -X.

                                                              EKepar-
    ate funds by a single man and   Issued  in his name, and subsequently,
    after his marriages the certificate    wae changed to read “L. L.
    Davle or Mre. L, L. Davis”, and at the same time a signature card
    ~81) signed by Mr. and Mrs. Davis , whioh stated that the oertlflaate
    was held by them as joint tenants with right of survivorship,     upon
    Davis’ death, Mrs, Davis beaame the sole owner of the $~,OOO.OO.
          It is a eolfloally   oalled   to out lttantlon   that the oourt
    orid at page t;318’
                   II    When the oontraot was made
             by L.‘LI iavle wlth East TeXasa I&e. Davlr
             was thereby vested with a prellentp though
             defeaaible,  interest in the deposit.    Her
             interest would have been defeated If the
             certificate  had been ohanged by Davis or
             the deposit had been withdrawn before his
             death, or if Mrs. Davis had predeoeased
             her husband. Rut, when Davis died without
             the interest of Mrs. Davis havl      been
             defeated, she became the owner “041 the
             full title to the depolrft 1 D O .‘I


    1 Artlole 7117, VernonCe Civil Statutes, PPeeently oarried as
    Art. 14.01, 20A, Tax,-(lien., V.C,S., provides, in part, an follouag
                 "All property wlthin the juPlsdictlon  of this
             State,.   o .whloh shall paaa. D .by deed, grant,
             sale or gift made 01”intended to take effect in
             possession or enjoyment after the death of the
             grantor or donor, shall, upon passing. . .be
             rrubjeot to a tax. e q‘I
    Honorable Robert S. Calvert,   Page 3           Opinion No. W-1348


i          The attorney for the estate takes the position that since
    Oplnlon No, O-289 did not find the existence of a joint tenancy
    or a verted.lnterest,  Its result should not be reached in the
    instaxit ease. .We disagree.
          At,page 931 of the opinion in the Davis case the court said:
                 “Upon the death OS L. L. Davis, Mrs.
             Davis became the owner of the $6000 on
             deposit with East Texas a8 her, separate
             property.     The contract madeby Davla
             with Rast Texas was a valid and enforce-
             able aontract for the benef.lt of a third
             party, Edds v. Mitchell     143 Tex. 307,:.
             184 S.Y.2d 823, ,828, 14 A.L.R. 470. In
             that case we held that Unlted States Sav-
             ings Bonds purchased by Mrs. Rhode and made
             payable to herself and on her death to
             Mm. Zdds, were, on the death of Mrs. Rhode,
             the property of Mrs. &ids. Our concluelon
             was predicated on a holding that the oon-
             traot made by Mrs. Rhode with the United
             States Qoverment was for the benefit of
             Mrs. Edds and that when the bonds were
             purchased Mrs. Edds acquired a present
             vested though defeasible interest ln the
             bonds which ripened into full and abao-
             lute title upon Mrs. Rhode’s death. That
             case and this case are not to be di,stln-
             gulehed because the former Involved bonds
             and this lnvolvus a savings and loan cer-
             tlf lcate . ”
          The contract made by the Decedent In the case this office
    is now considering wa8 a2valld and enforceable contract for the
    benefft of a third party 0 The Edds
                                    __   case cannot be distinguished

    2 In Adam8v. Jones, 258 S.W.2d 401 (Clv.App.    19!33), the court
    said at page 403 :
                 ‘The grounds u on which courts have sustained
     ..      such agreements P joint tenancies with rights of
             survlvorshlp~   have varied.    Some courts have Fe-
             lied upon the law o? gifts,    others upon the law
             of contracts and trusts.     See 7 Am.;Jur., Sets. 426-
             436, 9 C,J.S,, Banks and Banking II 286, p. 595, and
             the very able opinion in Reach v. Holland, 172 OP.
             396, 142 P.2d 990, 149 A.L,R, 866, Annotations same
             volume, p0 879.
                                                 (Continue)
        Hononablo Robert 8. Calvert,   Page 4           Opinloa No. HH-1348


        from thlr 08~ beaawe   It Involved bonds and this case Involves a
                     locount,
        joint o a vullg r        The Davis ca8e csnnot be distinguished
        from this case boceuee It In-Q      a 6avln&# and loan certlflcate
        and this case @?o%ves a joint bank . account.
                                                _       At the      ._- the ac-
                                                             . . tlae        -
        count was openea, the mrvlvo~   acqulrea a vesteao tnougn 06reaal-
        ble Intorest, In the account which rUened Into full and absolute
        title upon the Deoedent’s death. Death was the taxable event; and
        at thlo time, the Inheritance tax was levied upan the plcedent’s
        Interest In the Jo%& account.
               In Attorney i3enera11s Opinion No. O-2589, written In 1940,
        thie of?ice held that where a joint tenamP had been created In
        crrtain stock upon the death of the joint tenukt who had caused
        the creation thereof’, there w&s a taxab3.e .transfer for inheritance
        tax purposes d hls one-half Interest to the survlvlng joint ten-
        ant under the provlaion of what was then Art1010 7117, taxing
        trans?ers by “gift made or intended to take effeot in possessi~on’
        or an,jcyment after the death of the. , .donor”. Evon prlor to
        the date of this opinion, you have Informed us that it had been
        the consistent departmental construction for many years that such
        tramfers ware taxable.     It is well settled that great weight
        shwld be g&van to departmental eonstructlons     of long standing,
        a& such oonrtrwtto?k~ will not be departed from unless clearly
        lmo neo u6o  39 Tex..Sur. 235, Statutes, Sec. 126. Moreover, the
        J,,s@slature has met many times sl~ee the departmental construe*
        tlon wae plrced on t&i statutory psorlslon In question; and the
    4   &q&lslature is presumed to have aafiulesced In such construction.
        IsbeLl v. Oulf Unlon 013. Co., 127 Tex. 6, 209 S,W.2d 762 (1948).
             3Two important ‘Texas oases o the B6ithea ca& and the Cahn
        ca88,  have dealt with the taxabllltyd2-2FoLnsfers  by deedTaM,
        sale 00 gift made or intended to take effect in posse.esion or
        enjoment after death D

t
        2 (Cont’d)      “We will not indulge iA a prolonged discussion
                     of the academic. The agreament having validity
                     must be enforced 1,rrespeotive of the reasons sus-
                     taining It 0”
               If we be in error in our decision that joint bank ocoountr
        with rights of survlvorshlp would be sustained in this State u$on
        the law of contracts,    it could make no difference in the tax re-
        sult since regardless of whether such agreements are enforced under
        a legal theory of the law of contracts , or the law of trusts, or
        the law of gifts, the tranafer remains one intended to take effect
        after doa+& and Is thereeiore taxable.
        3 Bsthea v, She a .d 143 S W Pd 997 (CiV AP
               V.      fp$g
                  Qalve,.~,,
                         1    Tex. *&&, Sl 3, W.&i
          .




     Honorable Robert S. Calvert,          Page 5            Opinion ‘No. WW-1348


             In the Bethea .case, Henry Henke and his wlfe executed a
     joint will an-t         agreement which provided that the entire
     community estate should pass Into a trust in the event the hus-
     band died first.    Mrs. Henke and her daughter were to receive
     specified annual payment8 from the trust during Mrs. Her&e’s
     lifetime,   and the payments to the daughter were to be increased
     and continued for eight years after the mother!:e; death, At
     the end of euch period, the corpus of the trust was to be dls-
     trlbuted to the daughter, If she was then living,     If not, at
     that time the property was to be held in trust for an additel
     five year8 and then delivered to the daughter’s children.
     husband died flr8t and an inheritance tax was paid on his one-
     half of the community eatate.     Upon the subsequent death of Mrs.
     Henke, It was held In the Bethea case that the right of the
     daughter to succeed to the-r’s         community Interest was taxa-
     ble a8 a transfer by Mrs. Henke made or intended to take effect
     in possession or enjoyment after death.
                  We quote the following   excerpt   from page 1001 of the Bethea
         case :
                         n      And thus the trust Instrument
                     by lb’ok    terms brings the instant case
                     squarely within the statute, which does
    ‘(               not impose the tax on the transfer Of
                     the property, nor on the passing of the
                     property from the grantor, nor on the
                     right to become beneflclally  interested
                     in the property, but imposes the tax
                     upon the passing of the property or
                     Interest therein when ‘made or intended
                     to take effect in poaseeslon or enjoy-
.                    ment after the death of the grantor’ . . . .”
                 In line with this reasoning, we conclude that the fact that
         the surviving joint tenant became beneficially    interested in the
         property in question prior to the death of the decedent makes no
         difference a8 to the question of taxability;    rather, the lnherl-
         tance tax became due upon the receipt by the surviving joint ten-
         ant of the Decedent’s interest In said property.
                  We quote further   from pages 1002 and 1003 of ‘the Bethea
         cat40:
                        I,      Under the Fedeiral .EstBtk .Tax
                     Law, ’&‘prlmary   question to determine
                     is when the decedent or grantor parted
                     with all property rights.    Under our
                     State.Inheritance  or Succession Tax
                     Statute, the primary question is whether



                                                                                    ‘:.!
               Honorable Robert 8. Calvert,    Page 6           Opinion No. W-1348


                        the transfer was madeor Intended to
                        take effect 5n poswesion or 0nJoyiuent
                        after the death of grantor or settler,
                        particularly  In caee6 of transfer of
                        property in truat.     It is not a quee-
                        tlon of when the beneficial    intereat
                        la created, but the tax 18 imposed
                        upon the right to receive 5n poesesalon
                        or.enjoyment after the decrth of grantor
                        or settlor q In consequence, a grmtor
                        or aettlor may oreate an lrrevooable
                        trueti during his llfetlme,   still  If he
                        postpones the right of posreaslon or
                        enjoyment of the beneficiary until
                        after grantor’s death, the property
                        or any Interest therein 1s subject
                        to the Inheritance or succes6ion tax
                        at or after his death. Under our
                        statute, where either lpoeeeeeIont or
                        ‘OnJoyment’ la made contingent upon
                        the death of grantor or eettlor of
                        all or any part of the trurt ertate,
     ‘I’                such transfer 10 taxable. . . .”
           .
                     Thus agaln,‘the court made It clear that the primary guea-
               tlon under our lnherltanoe tax statutes Is not Whenthe decedent
               parted with property rights, but rather lo -her     the transfer
..             was made or intended to take effect  In poBsesrlon or enjoyment
               after the death of the grantor or eettlor.   The aourt rtated
               that If the poasesslon or enjoyment of the propert   or any inter-
               est therein Is postponed to the beneflclary until L    frantor’a
               death, the property Is subject to an Mheritanoo tax a his death.
                     In the Cohn case,           at page 872, the SupremeCourt
               again expressrylpapprove         oldlng of the Bethea case.
                     on May 9, 1962 t
               in Robert 8. Calvert, Co
               Independent Executor
               pamea upon by the c&w
               ficlary of a will 81) a result of the election of the owner of
               euch property to accept under the.wlll ~1~ to be regarded as
               having passed by the will for the purpose of computing the lnherl-
               tance taxea Imposed by Article 7117, Tex. Rev. Civ. Stat. 1925,
               an amended, Acts 1945, 49th Leg., p. 148, ch. 98. The last cited
               statute was repealed in 1959, but It8 provlalons in oubetantlally
               the came language were reenacted as Article 14.01, V.A.T.S., Tax.-
               Oen. The court held that the property received by the beneficiary
               of the will as a result of the election of the ouner did not paw
               by will wlthln the meaning.of Artlole 14.01.

                                          ..
     .    .




    liotiorabli, Robert S. Calvert, Page 7            Opinion No. WW-1348


          We quote the following   excerpt   from page 363 of the oplhion:
                  II. . . as pointed out in Magnolia
              Petroleum Companyv. Walker, 125 Tex.
              430, 83 S. W.2d 929, it Is proper to
              consider the history of the subject
              matter ‘In arriving at the purpose and
              intent of the law.
                  “Hlatorlcally, death dutlea ‘In all
              countrlee rest in the eeeence upon the
              principle that death Is the generating
              source from which the particular taxing
              power takes Its being, and **+ It iB
              the power to transmit, or the. tranemie-
              alon from the dead to the living, on
              which euch taxee are more immediately
              rested.’    See Knowlton v. Moore, 178
              U.S. 41, 20 S. Ct. 747, 44 L.Bd. 969.
              From a reading of our lnherltanoe tax
              statutes, we think the basic planand
              purpose of the Legldlature wae to levy
              the tax upon the privilege of aucceedlng
              to proportp belonging to a decedeht at
              the tlme of his death. . . .‘I
           We thlnk our holding on this question 10 caneietent with
    the basic plan and purpose of the LegiBl8ture to levy a tax upon
    the privilege of succeeding to property belonging to a deoedent,
    beoauare It La not until. the death of the joint tenant that the
    eurvlvlng joint tenant aucceede to the property.
           However, we are of the opinlon,..ln friew of the presumption
    that the bharee or lntetiesta of joint tenant0 are equal, Attor-
    ney Qeneralle Opinion NO. o-2589, suptia, and in view of the con-
    tract crea$lng the joint tenancy, that at the time of It8 crea-
    tion, each co-tenant became vested, subject to defeaeance, with
    a one-half Intereat ln the bank account; and that therefore only
    one-half of sold account paered to the eurvlvor at the Decedent’8
    death. The Inheritance taxes should be computed accordingly.

                               $UHHARY
i
                The decedent ‘8 one-half interest in: ,A..
          bank 8CCOud   whfch the decedent and another
          held as joint tenants with right of survlvor-
          ship 1s eubject to an Inheritance tax when
                                                             .   .   .




Honorable Robert S, Calvert,    Page 8               Opinion No. Wit-1348


      received    by the survivor   at the deoedent’e
      death.
                                    Youre~..very truly,
                                    \cILLWILSON
                                    Attorney General of Texas




                                         A8018tMt

MlrlCOP/jP
APPROVED:
0pINmN cOMMIw!Es~
w. V. Oeppel?t, Chairman
Arthur Sandlln
Robert Scofield
fpgr p;
  . .
RBVINNND
       FOR ,!PREATlQRXEyGENERAL
By: Houghton Brownlee, Jr.
