Honorable Robert S. Calvert            Opinion NO. c-361
Comptrollerof Public Accounts
Capitol Station                        Re: Method of computing
Austin, Texas                              inheritancetaxes
                                           where husband wills
                                           to third parties his
                                           community one-half
                                           interest in govern-
                                           ment bonds payable
Dear Mr. Calvert:                          to himself or his wife.
     You have advised us of the following facts in connection
with the above captionedmatter. The decedent in question
died testate leaving a will which contained,among others,
the following provision:
               11
                . * .A11 other personal property
          which I may own at the time of my
          death, Includingbut not limited to my
          community one-half interest in all
          communityUnited States Government
          Bonds, howsoever they may be inscribed,
          I bequeath to my beloved children,
          Allen Bates, Doris Mae Cotton, and
          Betty Sevllla, share and share alike."
     The attorney for the estate takes the position that the
decedent's community one-half interest in the governmentbonds
should be distributedfor inheritancetax purposes to the
three children named in the will rather than to the surviving
wife. We do not agree in view of the decision In Free v.
Bland, 369 U.S. 663 (1962).
     In the Free case, government bonds were purchased with
community fusand    issued to "Mr. or Mrs." Free who were
residents of Texas. Mrs. Free had a son by a previous
marriage. At Mrs. Free's death, the husband claimed exclusive
ownership of the bonds; and the son, who was the principal
beneficiaryunder his mother's will, claimed an interest in
the bonds by virtue of the Texas community property laws.


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Honorable Robert S. Calvert, Page 2      Opinion No. (C-361:):


      The Court of Civil Appeals' affirmed the trial courtls
award of full title to the surviving spouse but reversed the
trial court's award of reimbursementfollowing the holding
in Smith v. Ricks, 159 Tex, 280, 318 S.W,2d 439 (1958),in
which unconditionaleffect was given to the survivorship
provisionsof the Federal regulationsgovernin.@~savings     bonds..2
The Texas Supreme Court in the Free case, acting under the-
authority of Hilley v. Hilley, mex.        569, 342 S.W.2d 565
C~,~~;II~,W;~I;; was decided while writ of error waspending in
                  and which overruled the Ricks case, reversed
the Court of &.vil Appeals and reinstatebt-hejudgment,    of the
trial court in a er curiam opinion. Bland v. Free, 162 Tex.
72, 344 S,W.2d 43$7X9-
     In overruling the Ricks case, the Texas Supreme Court
made the following stats     in the Hilley case at page 570:
               "It is clear that the Federal
          regulationsdo not override our local
          laws in matters of purely private
          ownershipwhere the interests of the
          United Statea are not involved. Bank
          of America National Trust & 'Savings
          AssIn v. Parnell, 352 U,S. 29, 77
          S.Ct. 119, 1 L.Ed.2d 93." \
When the Free case reached the Supreme Court of the United
States,it'mcted this propositionfor the reason that the
survivorshipprovision is a federal law which must prevail
over state law under the Supremacy Clause of the Constitution
of the United States. Article VI, Clause 2.
     Thus, a decision of the Texas Supreme Court which gave
effect to the provisionsof a will which devised the deceased
co-owner'sone-half community interest in governmentbonds to
a t,hirdparty was overruled;and ,full title to such interest
was awarded to the surviving co-owner.


L/337 S,W.2d 805 (1960)
?/The Treasury regulationsprovide that the co-owner of
  United States savings bonds issued in the 'or" form
  who survives the other co-owner "will be recognized as
  the sole and absolute owner" of the bond (31 C.F.R,,
  Sec. 315.61), and that "no judicial determir#tlonwill
  be recognizedwhich would defeat or impair i&e rights
  of survivorshipconveyed by these regulations."
  (Id.
   -   Sec. 315.20).

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Honorable Robert S. Calvert, Page 3     Opinion No. (c- 361)


     Since the Free case has settled the question of property
rights as to boxof    the 'or" type, necessarily the distrl-
bution of the decedent's one-half community interest In such
bonds must be in accordancewith the property rights as they
existed at the decedent'sdeath. It is at this time that
the inheritancetax accrued under the provision:of-~Ar.ti,~~8:
14.01, Title 122A, Vernon's Civil Statutes, taxing transfers
by "deed, grant, sale or gift made or intended to take effect
in possession or enjoyment after the death of the grantor or
donor. . D ,' Atty.Gen.Ops.Nos. o-6691; C-12. Once the tax
has accrued, it is immaterialwhether the surviving spouse
sees fit to give away the Interests to which she succeeded at
the date of her husband's death.
                      SUMMARY
                      ----em-
                A provision in a will purporting
           to transfer to third parties the
           decedent's community one-half Interest
           In government bonds issued to himself
           or his wife is ineffective. At the
           decedent's death, the surviving spouse
           became the absolute owner of the
           deceased husband's one-half interest
           in the bonds; and the value thereof
           should be distributed to her for
           Inheritancetax purposes.
                                Yours very truly,
                                WAGGONER CARR
                                Attorney General of Texas


                                By:

MMcGP:dl
APPROVKD:
OPINION COMMITTEE
W. V. Geppert, Chairman
Gordon Rouser
Ralph Rash
Kerns Taylor
W. 0. Schultz
APPROVED FOR THE ATTORNKY GKNFRAL
By: Stanton Stone


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