Case Information
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OFFICE OF THE ATTORNEY GENERAL OF TEXAS
AUSTIN
Deer sir: actor of ii0v':k I 6, Wo are In rooolpt of 0-u u
1941, In bhloh you rocgast tl 01,.io oi this department na to the Epolication of tb TQ f3s Xha ifauoo TQX Law to the ?&tete 02 ViXllkm Gil art Svi ,,. ,~~akL. ;_
d?ii??’
Divins OzcOutod~ &id trust'nae to trustee :WED to rmn- a son of the trwteo, the trust property of the trust prop- the p~o~mrty was to Tot3 trii~t agroo- o&2Inistration of this trust for tho i
oonkirma
-: *2 Honorable George I& Sheppard, Page 2
$@I tern! spacifiod herein, but ehould.tha mid Villim Gilbert 3ivins die intcs?A.o~and'laava~ a wldoiv or child or ohildre3, tber; meld trust properties shall vost in,his la:$il hcifa~accor+ $ng to.ti:a la\;- of descent and distribution.iti .: !Iaxas, subject tG the co~tinuaC's&inietration.,of thls'trust for the full tam specified herelhf .- should the said %lll~ Gilbert Bloina, art’er. attaining his mjorlty, execute his lant irill’ ai .” : ~.’
%este33ent, (ozG the'said 'iiilliaai Gil>art i3iViriS" ., .~ shall ufter:attaining his mjority, hava full'. xi&t, pozer iii& crut!iority to dis@,ijse' of 'the' trust propoztlas.by v~ill, subjaat to the oon- Sinued .a~~z&~iatration of the tru$t'estete‘.for $$a tom .hczain spcoified) devisi&-tie tr’ust propqxtie, -, haroin,raferraC to, aha thax~ftar -die .prior tom tho expiration of tbit:trwt, then ..a11 'such .t.r.ust propertics hala by’ the’ '%ustde '
.um?ar4his agramant shall vast in. suoh &avisoas nnd benefiqiaries, subjeot to tha cotittiusa aa- .plnistra~ion c$ thi.s trust for the .ful.l'.tern ‘. .?~pa.cl.f.iel hcxqiq. . . ‘,. ** . ,
!ihe- said~ i?illie~ Gilbert E)ivins died &-Xay 23, ‘1440 cfter .having obtainad tha age of -&w&y-ona‘yfars,’ lea?& a .will .whioh. provides in paxt,~a~~folI~t+~~e~ . in.; *, . . . ..
-%3UXXD:~I give, .daoise and:beGuesth.uzto. sty -6r6ther. .GLITST: TiILSC?T BITETS'and tis -sister.‘ 'b~Rk.~I~,~~:BI-~~:St shara and shaS3 aliEe,~'all 6f &y-proparty:of .e+ery kind lend oh&actor/ ~esl~ -personal for-otherwise an8 ~~hal~tler(sitrlatch,:of $hi.ch :I .nay .~ia.saizad end possessod, ]fo be their. co~wproparty', .aavising the mm8 to.,thm without ~apy ',.cans.t.raint .or suggestion, to ~$a'hal~;~ mnaf;ed,, mtalncd, :sold, .disposcd of,': or o,tb~eer~~:if+.~use; .' :as.thoiti ~OT~I goo& juogaent'tlay diot&ta. t
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-Tha.p,rohlm Of f@SsGGing the %x?S inbd,t6IKo tax to a oasa as present& hore,has never been passed od by tho oourts of this. State. Eere tha graator gave to the doccaant the poser of appointrzent over oartain trust proportisa. ii
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Eonorable,Georze H. Sheppard, Paso 3
: - the aeoodcnt inlled to exercise said power then tiuiiier the original tru3t~ aSreeE?ont the proporty~was to pass to Gllvor .. Wilson Blvius an& Xary L:ilos Divlno. Rowever, the decedent left a will in which h3,aevised nll,of his property of every -2. . ..klnB whatsoever to the s8ee indivi8ual3, Gllvs~,\‘Uson Biv&ns
. . and.,&yy Elles Rivlne.
Artiole 7117.of’tho Revised Givii~ Statutes reaas in pak aa folloWs: :. ., ., . . . .
“All property within the jurisalction of this Stats, reel pr p?orsondl., aorpozate Oi In- corporat3, and any interest there+ InoluCilng property passinS mdor a Senoral pmcr of ap- pointmnt exerclsetl by the deoedent bywlU.,
. which shall-pass absolutely or in.trust iy*wlll or by the laws of aoscont or Qistrlbu- . ‘. . tlon of this or auy other-State, ; . . shall:, upon p~eslrS.to 02 for the use OS any Person, corporat$n, or association, be subjoat to a tax fok‘tho benefit of the State’s General Rev- _* ., .. enue Fund,, In accor&ume with the io~lc~$~.~ --. ‘-~classiflcatlon . . .R _... : .
Qf”cour3em kthe abovo*quotob provkloi-‘of ‘I;he will of the dec-3&M is aonstruoa so as to tiot bo an eser- ciao of the power.of appointmat granted hiz~‘hy the donor . but..ti lncluae only the said decedent% other property, then the;propcrty in trust paaaes to the saia Oliver Hlson Rlvins ahd Kary Eiles Elvins under the to&s- of tho irrevoctible trust anQ 20 tax woula~bo due on the acatbof. the.decedenL “~l:aag facts as to the testator’s intent would.have ‘ta’bo ‘t&eh
Into oon3laemtlon to .doter,-lm whether.or:uot~he &HmiIed that his will should be au exercise oi the powor of ep.polnt- nent gr&ed him.
Eowever, a&me that the salC deccaoift &ki ‘emr- oise said pc-mr of eppol?ltnent in his will a,?d that he oppolnt- cd Oliver Wilson Rivino a& iIary LY,lcs B.vins, the :3m3 IU- dividuala who woul? have xeoelved:‘the pkopertyhnd :he .feiled to oxercinc the pom2. The question then Is would the Texas lrLl3ritanco tax, iiriiolo 7117, supra, whkch taxes property ‘paosinS.upou the exercise of a power of appolntnez~t by will
.apply unaer the oircuxst3uces of this csna? .~
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Honorable diorza HI, Sheppard, P3ge 4
Me belleve‘thst the anmor to this questlo is controlled by.~tha case of Arnold v. Southern Pine Lumbar co., 133 a. x. 917. In that (l3a3 pzo?azty m13 deeded to .a hu3bimd in trust fosl his wife for life nod Shax+s granted
the,pouer of rtp;olnt3ant either by deed or alll. In.the eveat ~38 did not exercise said po~os the pro@erty vies to pass to her cblldzen.,. she left a wlIl In which, she left aU. of her property to her children. It was contondcd that 'by seld will the deoedeut hod erazclsed ths peer of appoint- ment end t&t the ohllaren too4 the progsrty fro,?: her Sub- jeot to the dcbts'~of her estate. The court overruled thle oOotaIktiO?l Md St&Cd aE fOIlOV3:
.q.’ yj. XeUsee Ties given no prororty lntar- est in the lend,-but V&S mroly ths dei;osltary of the nsked.lesel title, holding it in trust for :._. the real owners of the benofiaial intereot.. _- ., :
: *(5). For'uhsn, then, was he hol~ln~.t.hat which remlued after the tsrr&uStiou of the life cstate of his rulfe? ~vldently for the children, .? _. or xhousoever she z&&t Sppoint. Those who tight take by the eppolntzant were not-then eaeaoeptlble of aacertslrment, car do&d they be %ill the ,.-.
power m3~axecutea. %6 ~ri~htwhich W&E. to aolte into eris+ce Upon tne8ggoistmIzt beI= mile '.
: 8188; t&erefore, so.contlr~~ent and uucsrteln~that
it did not ri‘ttaln to the. dignity ck" en .astzte. . . h-ence the ollly batieflclaI Interest comeyaa by,' the'&ed beyond th,e life estates of Lirg. Sillaoe ;' xqa3 that 'conferrad upon the children. Tney then had a oxsentrldht 'o? futura cnjoyxakt, subject to be u-o& bytt;?e emsution of the r,cxrer by ...' I::rs. ?iallz?-%e contlwcncy r;hich conironted. ..
then was oaa which eli;ht dcfeot ~3 e;ristlnS right, not-one upon vihlch Its origin x%uId de3ca.d. ‘ikaer the 8uthoritios referred to upon tha forner ey- pesl this conti2ssncy did not prevent the rami+ der fron bacozlng a vest@. one. Set &xold -L So.
Fine Lbr. Co., I23 3. 1:. lI.G.2, nnd.caaas @zara : CitGd.~ ._ .,
Honorable George E. khoppard, Page.5
. . by virtue of'their orlRlnal title. birs. .ITallace could not t&e augthing Sroz their intcrestac- under ths deed, exospt by appointing so100 qUi%d other person to the estate, .'.'. .; . "The lntdxest whioh one his in an estate .'is neasureo'by the'older and better title."
(Undersoorl~ ylrs) ': .'
Apply& the holding of the oourt to 'the facts in our cam Oliver Kllson Elvins sod hkry i!ilcs 3lvins orlglnally were given a vested remainder In the property . subject to being defeated by the decedent having passed
the property to a thlrd.party by the exercise of the power of appointment. ibis he did not do. Therefore ‘tlx prop- erty in this case~passed under the terms of thv.trmt agrae- Inent. The question arises, however, 'whether 'or not the.
s8me is taxable ufder the wortling of our tax statute, supra, due to the fact that the power of appoliltmntwas,exercloed, as we assumd, and the property passed to.Oliver Zllson Blvlns and lktry Xlles Elvins because the deoadert did not . -appoint a third party. This point was passed on by thr
: 5ldrd Circuit Court of Appeals in the case oS.Wear v. Ckm-
-.-misslonor of Internal Revenue, 65 .Te& (;iG) 665. ‘me Fed- . -
eral Lot elso~tsxes 'nproperty passing under 'a ge&ral power OS appofntient exercised by the decedeot by valll .'.. .n The court stated as follows: _~ _, _, .,' i i ; .
Vhat'question is predictted on the law of 'Pennsylvania that, 'IS the douse of the power * exorcise it lu such a tuner that the property pusses exactly as It would have passed .lS the povier had not been exercised, the property will be treated as passing under the w-sill of the donor.' ._~ i Vhf3 real .question, ai we venture to 'put it, ia whether the exeroise of a g,cne$Lpo:?-er cf ap- pointment ia a la&ul subject OS Sedersl-taxe- tion, to be neasuredlby t.he.v&e OS property vinioh under state la;i passes. ii? ':iu:thkcase, not from the decedcut donee OS the power but frora tho donor.
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930 subject of the tax In this case ~1s the exercise of a general power of appointnent;' The *6 Honorible George 8. Sheppard, Page 6
tax 1s not on tha property OS the pmer dut 1s on the exercise oS tho pv.?er 1tselS. , ,
*An&, further the Congress has, ln some situations, powr 4 0 tax transmlsslon of prop?- erty etfeoted by death even the@ by the' fau of tho decedent's domicile such property lo not part of his estate. Fidolity&h;i.ladclphle Trust Co. v. lZcCau#n (C.C.A.) 34 F, !2d) SOP, @2? .. “. .‘. .: .,
'We .have not been convinced .that on the aeath of .the Qonee nothing happened lp rospeot to the 'property of the povfer ~8. ln xespeot to the daughters' right to the property by the ex- erolse of the po??er. Eefore Its exercise t.he daughters OS tho deoedent, the twice pamed ze.- olplents, had under ~Pennsylvania :Jq:f an e3tat.e in the property'of the povfer. But~:it was a de.- Seaslbls estate., not unlike the interest of a -. -beneSlolary fn a polloy of l$.S $rm&ice .vi&e.re
the insured .has :xescrved, yet has not exerolse$ the right to ohange the bencSi.clary, ,melx estate was liable ~to be whol1.y take.n avzy $roG them by the exe~rolse of the power in J?a~?r. pf others. So long as -the don69 :livcd and retains8 oontrol. over ,the disposition Sp t.pe .propqrty .$he aaughtars ran -that :xisk, vihlch pas akin -to -the risk of a change OS beneflolax-J.es -in a .polloy of ,: insurQnco.. rot until the donee .disd did ~that
ri 3% disappear.. %Jntil then he :stood :ln their 3VQY.. Tharofore :lt was upon his .death -v$thdut exercising the .poVwer adverse to ~them @at. ..the estate of the daughters becme :lndoSeasible.. *. . .
And such a .tnzc, we :hold , the -f e,deral govqrnmqnt, under its sovereign poivcr to -levy ta,ses, .may :lfliF fnl1.y impose upon the exercise -oz,.a .p.Wer .ec&,ect- Ing such a change., . . ,. ..(I i ;~
Under the reasoning of the above case ,the. Texas inheritance tax would be due untier then faots you present.
Honorable George E. Sheppard, Pa&6 7
However, the Point was again passed on. The second Circuit Court of Appeals in the ease OS Grlunell Y. Corzissiouer OS Internal Pevenue, 70 Fad. (26) 705, held ccztra to the U&r ease, supra, The oourt held that as the proplorty did not"' pass upon the exercise of the povler.dS appointmnt but’xather passed under the will of the orlg.inal donor t.he saci9 was pot -taxable as Property passin% under a general pomr of %appoi,ut-. msnt excroised oy the,decedent by will.” (Underscoring ourr)
Eecauso of the confliot In the t%:o above mentioned Fedora1 cases the Supreme Court OS the United States granted *a writ of certiorari. See Fielvcring v. Grinnell, 234 Up .S, 153, 79 I,. XX. 825. The oourt Btatati a3 So1lo~s.:
*(The crucial words arc ‘property ,pdssin~ .~. under a general power 0S appointment exercised by the daoedcnt by will;* Analysis of this c1.ause” discloses three distinct requisites--(l) -the ox- lstenoe ai a goneral pwlar of appolntnsnt; (2) .an .
exercise of that povrar by the decetlent by.will; and (3) the passing OS the property in’virtuo of ouch exercise. Clearly, the 6enersl pzvar-existed and was exercised; and this Is notdisputed; Eut it is equally clear that no property passed under the powor or as a result of Its ersxciso since that result was defiaite$y rejected by.the.bcne- Slciaries. . .
Yi’e granted the writ of certiorariin.~thi’s’ case because oS~an.e.l.le.~ad conS1ict aith,Uear.~y.
: Commissioner of ‘Internal Revenue [C..C.h.‘3d).65:P.
(2d) 665, and Leev, Commissioner oS.Intcmal:E6v- enu6, 61 ‘App. D. C. 33, 57 F. (2d) 39~9. ~~The.rea-~ soning and,oonclusions of those oourts and. of’the-.
ocurt below cannot bs.re’conclled.. %e are:of-.tho opinion that, to the extent of the conflict;the view of the former is wrong and that ,oS..the.oourt- below Is right, cod we hold accordingly.” ~, . .
‘Under the abo-~0 holding OS the Su:rene,6ourtoS the United States ani¶ the othor.authorit,ies citedherein, It is our opinion that ,the,propurty passing to Oliver Wilson Bivins and Kary Eiles Bivino passefi underthe trust agree- ment and IS not subjeot to the Texas Inheritance tax.upon ~, ,. the death of ths decedent, Y;illitin Gilbert Zivins.. ”
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Honorable qeorgs IL Sheppard, Page 8
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We trtist that the forogolng is suffiaient to en- lighten you in this matter. I /
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