Untitled Texas Attorney General Opinion

. -* .

843.

OFFICE OF THE ATTORNEY GENERAC OF TEXAS AUSTIN -a.yIIp( y./- LA - -9mua

Honorable George H. shoppard Co?lptrollarof Publio dcoouats Austin, Tesms

xb3arsir:

3t for an opinion t:orrawfor xite ioheritanco tams. art 98 r0im6:

. with r&&t or surcivorshlg,end not as tenants in COaxOn." ~;eare further edviccd that Harry E. Xorrow and Certrtie Ii. vorrow :7arohusband end vita durin::all ot the tina Involved, &d the",no cocsidsrntionwas pald to 22. E!orrowor onyoce el.nefm having the stmk re-lseuad to hi.%and his wire as Joi& t@;?ant~.

I 844

Honorable George E. Sheppnrd, Page 2,

Your question 16 what part ol'this stock, if any, is subject to the State luherltame tax by virtue or xr. LorroWs death. I ! Khen this &oak wm lx&stilted by Xi. Harry E. EOT- row fro=.his father'ln 1932 It becam his separate property, and his wire had no interestin It at that tine. Artiole 4613 of the Revised Civil Statutes ot Texas) Townsend '0. Challlett, (Civ. App.) 45 S. I?.2nd 334. His aot of having the etook re-issued to him and his wife as joint tenants appears to have been purely voluh- tarp on his part en& we uademtand that he received no con- sideration. Khatever interest I&s. Gertrude ?.I.tiorrow re- oeivod in the stock was a &lPt frcn Ur. Korrow. One spouse hss the power and authority in Texas to &ive his or her sep- arate property, or an interest therein, to the other spouse. 23 TQX. Jur. 70; speercs Law ,ofzarital Right5 in Texas, 3rd Ed., pp. 179-186. Let us now look at the nature of ejolnt tenanoies.* Tiefind a definitionof joint tenancy in 14 Amrican Jurls- prudence 79 as follows: *An estate ia joint tanenay is one hold by two'or gore persom jo,$ntly, with equal rights to sham in its enjoyxoont during their lives, aud having as its dlatlngulshihgreature the ri&t of sul'vlvorship or jus aocresoendl,by vlr- tore,of nhlch the eat~lreestate, upon the death 02 any of the joint tenants, goss to the survi- vors, and so oi?to the last SurvLvor, who takes an o&ate of ,inheritanoefree and exempt fro5 all charges zade by his dcccased ootemnts. . .* i3yvirtue of tho holdinljof the Cotit of Civil IQ- US?&? at aoammt in the case of chandler V. Kountze, (1939) 130 3 . x . (2d) 327 (writ refused), it io now establishedthat a joint t~mncy cm legally exist 1~ Taxas. Prior to the holding in that case thme was so1ceoonfusfon a5 to the mean- LE<To-e ~rtlolc~25~?0 of the j&Msod Civil Statutes of 'fwas, vihichrca6.sas follons: “Art. 2SO. (2471) (1698) (1655) Jus ac- cresaandi abolished. "%zre two or xore persons hold an estate, real, iorsoml or mixed, jointly, aad one joint

OWiaOl! die8 before 8e?eranso, hi8 Interest in 8ai8 joint ertate rha11 not 8unlre to the remaini~ joint owner or joint owners, but whall desaend to, 8nd be Ye8t8d in, th8 heir8 Qr leg81 repre8en- tPtiVei3Of auoh deO9a8Od joint owner ih the 8am8 Mnner 88 if hi8 intarert had ken 8evered and 8aOertaiMb. (Act Marob 18, 1646, p. 189; PI D. 5489; 0. L.vol. 8, p* Leo.)- S88 tllo oas8r of rn88 1. ArOLltrcmg, 88 Tax. supp. 355, aad P8tmx8on v. Kirk, 73 Tex. 584, 11 8. 1. 5M. HovWer, the Chandler v. Kountze 0800 held that Artiolo 12500put 8n 8ad to jointten8nOy and rurvivorahi~ 88 a matter of 18~ or by OpsX-atiOn Of law, but th8t 8 jeint tenenag oould be OrWod in ‘RX88 by 8XQl'e88OOntX8Qt. As we underrtanb the fao$a in thi8 088e, rll of thr parti oontnoted tbrt Yr. 8nd Xro. Morrow would own 9hlr 8took a8 faint tenante. TEo faat th8t they wem hur- ban6 86 Wife would not pX8VOnt th8 Wrangemnt frOm b.ing: 8 jObt tM8nOy. Ingelbrooht f. Bngelbnoht, 38s T11, LOB, I55 w. L. 667. ‘pb, n8tiUX’8 Of th8 ~l’O$M’ty i8 iE4JitOZi81 .bW8tU8 “8% Od(ry10~ l8W dOi.Ilt t8MSlOfOd, With the iJlOidOl%t of 8ur~irOr85ip, obtained 86 to both l’U8l8AB ~tfM?n~l QrOp- 8rty.w JoEnrton V. SOEnBton, 175 Me. 91, 75 8. w. 11109, 61 L. B. A. 166, 96 A&L St. SasSb 486. It 68filZit8ly8 poan the chia 8rxan@m8at at&r i -8 8 joiat t8MllOY. AD t-0whothwr rhioh thllr#took ‘111s01110 or not it i8 aubjeot to the Stat0 inkerlt8nOe tax by virtue of Hr. WrxOw'8 688th d8pWdw upon the OOn8trUetiQn tS b8 p18Od UQOZl th8 %X&U inhOl’it83%08 t8X ItatUt88. 2%8 lt8ttttO th8t dO8i@ltt38 th8 p%'o~M~rty ad tha OonditiofM ursderwhlah it 18 rubjeot to th8 8sate lnEarlt8noe tar ir AStleL8 Trio of Vemon*s Annotated Tgvisod Oivil tlt8tutOaof 'PIx88,Whi8h ro8d8 a6 iQ11OW82

Honorable'CeorgeIi.Sheppard, Page 4 u . or administratoras insuranoe umior policies takan out bg the decodent upon his o'#nlife, and to tho extent of the oxcsss over Forty Thousand Dollars ($40,000)of the smount receivable bpall other bencfioiarlesaa Insurance uder poliolea taken out by tha decedent upon his own life, whether belong-in3to inhabitantsof this State or to P?rsons who are not inhabitants,regardless of whether suoh property is located *&thin or with- ; out this State, vMch shall pass aboolutoly or in trustby will or-oy the la-;rs o? descant or distri- bution or this or any other state, .+x or deed, m sale, or :qiftmade or intends to tnke ef- ,fcct in posocssion or enjoyment aftar the death of the ~-rwtor or donor, shall upon passirq to or for tho usa of any parson, corporation,or aosocia- tiori,bo subdact to a tax for tho benefit of the Qtatcto Car?erx Revenue Fund, in aocor:!ance with the follov~ingclassification. Any transfor naGe by a Grantor, vendor, or donor, VJhettier by dead, Grant, sale, or gift, shall, unless uhcwn to be contrary, be d~3md to have bcon made in oontom- plation of death and subjeot to tho same tax as horcin provided, if such trsnsfer is made within t-&o(2) gcsrs prior to the death ol'the grantor, vrnckr~, or donor, of a.material part of his estate, or if the trsnoter made within such period is in tha nature of a final distributionof property and without adoquste valuable aonaideration.* (Under- scoring our3) There has been no Texas appellste court dsclslon on this quostlnn;and Prom.our investigation v;sfind that there is ercrat confusionamong the decisions in the other states in which the question of liability for inheritance tc-xc3on joint.tenanoles hasbeon passed on. It seems that u majority of the oourts in other states have held that un- der iahhcritxxatax statutes that fix a tax on the transfer of property "by will? or "by tko laws or Cesoent or diotri- b:tionn thoro io no tax llabllitg In respect OS property ec- c,_uirdiby enrvivorship in case of a joint tenonoy. 61 cor- pus j.&wis.1649; Attornay Cenoral v. Clark, 222 Uass. 291, 110 N. E. 299, L. R. A. 1916 C 079; In re Leaches Rotsto, -32 El. 545, 128 Atl. 497. The reason for such holdings 1 : bs orolaincd by quoting from the cane of RQ EaXelway 2. -Iil.Y.-15, 116 N. E. 343, L. R. A. 1917 E 1143, as foi- 1s .-. I.!.

“. ---*i”‘- -l-,i,.W-l...i.a .,,._,_._ _..~I . . . ..* . . A.-r.- --- *-..__ ... 1347

Honorable fX~0rc;O H. Sheppard, Page 3

“. . . t.hoeUNlVOr takes, not under the - laws regulating intestate suooession,but under the oonvoyanco or lnstrumontby whioh the ten- anoy is created.* This theory is zore fully explained ln ths case of Ellken V. young, 149 end. 1, 41 D. 2. 69, as r0liwtJ3: “. . . nmmts 0r tbls kind are sald to hold indlviCuo11y’aadjointly, haoina one ahd the 821;;s interest, accruing through oae aa& th3 smo conveynnoe,oomeccing at the sue tirm, ahd held by ooe and the saizepossession. Upon tha Couth of one joint tchart, there bo- ing no sevarahoe in the estate, his ontire in- terest is cast upon the survivor or survivors, to ths cxclusioc of the inhzrltanocof the 8an.ebj his heirs. The interest of the survi- vor in the rsolty is consaguentlyincreased by the oxtingulshzentof the interest of the tenant d3cesssd. It ia settled in law that a joint tenant my alienate or oonvay to a strm;or his purt or interest in the realty, and thereby be- Sent the right of the survivor.. Tied. Real. Prop. 2 238; 1 Viashb.Deal Prop. 6S2,.cl. 22; 4 Xent, COXL 460;.,1prest. Est. 136; Bovins v. Clin8, 21 Ind. 40; 0 AL & z&3. BnO. Law, .“_, SG2; 11 ALL & 9~. En0. law, 1092;‘~ Duncan 0. Ferrer, 6 Bin. 193. In the ancient language of the law, joint tenants were said to hold per zy et rjcrtout, or, in plain wor&, ‘by the moiety or half and by all’; the true interpretation ol this phrase boihg that those tenants were seisea of the e;?tirerealty for the purpose of tenure and survivorship,rhfle for the purpose of Laxxiiata alienation eaoh had-only a particu- lar part or icterost.w If the 3mas’inhorita~oo tar statute ilred a tax o:.lyon the trunafar of property *by willm or “by the laws ol'-de;cantor distrlbutionnit nay be that uuder.the theory of the above cited cases there would be no tax.due In this csse; but, the Texas statute also fixes a tax on the trans- far of property by “gift naee or intended to take eft’cctin91, po~msslon or onjoymmt aster the death ~1~ th83 . . ~.00.3or and it is our opinion that by vLrtue.of that prOVi8iOXTEG half of ,the value of this stook in this particular ease is . .,

848 Honorable George il.Sheppard, pago 6

subject to ailiZherit3nOe toX for the Teaso hereinafter explained. As ntated above, when this mtook xas first laher- ited by !iarryE. Xorrow froxzhis father it becam his sep- arate property, and his act whereby without any oonsideratioh ho o&used the oreation of a joint tennnoy.inwhich he and hLs v:ifevmze joint tenantswa3 a tziftaa far as the izter- ost obtained by his wife was oonoernod. In othar words, whatever istercst tho v:ife,Certrudc 2. Eon-o-e;, racoived was a gift. Khat interest did sha receive at the the of the creation of the joint tenanoy? Oh the question of what ihterost a joint tenant has 33 Corpus Jurls 909 says: The shares or intorcsts of joint tecnnts are prosu~~d to be equal, althsun,hthe contrary oay be shown by proof. . .* In the case of Grcehwood v. EIaunett,(Ala.) 93 So. 159, the court said: *VIZthe langago of t-heold law, the nature Of joint tonmcy is whore tho oxnora hold *par my ;t par tout.9 That lo to say, for tha purpose of tmura aml survivorshipoaoh is tha holder of the ?:holo;for the purpose of alienation,each has his ovm,shsreIwhioh is presunredto bo equal. 3 x. A. L. p. 243 8 311; 2 13ii30k COCS~.p. 180; wiiiion~, IicalProperty (Gth Ed.) p. 132." ?:ottiisk it is oloar that at the tinm of the orcation of the joint tsha.r.oy?xior to zr. XorroWs doath Urs. Horrsw rocelvad by sift a cm-half interost in the stock, that is she shared equally :'lithher hosbsud. She havioe mm Into that half in- terust by Sift prior to his death, it was not subjaot to an icherftnncctoz. about tho othor half intorest, that 13, the T.-hat i$torost retained by the husband when he created the joint tenancy? Upon the death of the husband that lnt~erest de- soeni.edto the wife. In 33 Corpus Juris 903 it oays: ~he di&tinct characteristicof a joint ten- axy In thct, upon tho death of one of the joint tenacts, thsm being no'severaoce,hin inter%St Gosc~nd~ to the survivor or survivors,and at length.to the last survivor. Thorcforc,whenever

Eonorable George I-LShepp3ard,P3ge 7

a joint tenahoy exists, whether at.comon 13~ or W-&2 the statutes, OII the death of one of ~~‘thojoint tenants and in the absence of stnt- ute otheralso, the survivors take the whole es- tato, . . .*'

It my ba Dreswecl that the huoband kl)es! thst t!.elaw ~3s sueh that Won he cauced to be cxeated the joint tccaacy with hii13nG his wife m jaint tenants thtrttho cm-hali intcrczt rotaice by bin would descend to his wife ticAl- atoly USOR his death. Ye mst rmesber that he reccivod no consldorstion. clearly this one-half interest ~3s 3 gist %35aEsor intonile to take efiect in possessionor en- joymnt after ths Costh of the . . . donor.” ThereSam, it cozxs within the,words of Artlole 7117 and is subject to tho tax. The scae holding that we have mde hero was r;ade by tto Suprae Court of Xew York in 1914 in the 03s~ of In ro W.lliCi~~ B. iEn3 COzpany, 164 N. Y. App. Div. 44, 149 N. v Supn. 417 (aSSime&in 214 It.Y. 710, 108 F. 2. 1112). $ thai.cmo !Yil.lfa~ B. Dsna owed EOILB stool; in 3 corpsr3- tion, end he had the stock re-issued to bin ana saao~bseibert, Jr., as joint teu3nt.s. X0 cocslderetionwas lielc? for this chahce ia o%aerohip. “. .~. the InCuclng cnuse cf the BiSt ~3s services which 2eibert h3d ren8ered to Villla~~B. Da&e. c o np my . l Ore -of the prooichms ,“. of the l?ewYork lnher- itance law at t,hattirieDrovirled:~“-4t.axshall be and Is herebp ir~osed uron the trarsfer or any . . . property , . . or any lntsrant therein . . . .topersons . ,., .4.,Yhen the transfer-Is of ictangible property, or of ta@ble popcrty *t:ithict,hsStcto, .. .'. by dew?, gant, bargain,,331e or iit ihtz;r+edto take eSfect’,in9oescssionor mjoyimnt SC a ;r’aht?r scch dnet.h.” The Suprem Court of !WN York 33M: vo think that the rel3tlon of the porti:: -hi that of donor acd dcnoe and not a cmtractusl relntioc for a valuable*considera- t.+ion. Ye ao not think’it is rcoessary to fleter- tine exactly the character OS title or ownership 3s b;t.v:eon thozelvos OS joint ovmro OS personal nor whether this was 3 gift inter vivos ;;roprty, - ho? Khet~heZit was nade in contemplationOS ae3t.h. It ‘eighthave been the Sorm~r, and not the latter, arli! still the ultimte succession be taxable. C&tie on Inherltacce Taxation, 697. Certainly,

,. . : .

:onorableGeorg;eB. Sheppard, page 2

while D32.3lived, the girt by him to Eeibcrt of this stock did not take eifect in conpletc pos- oossicn or acjoyzent, aor was It intended that it should. T!ia lrtactlon V.QXZ that such Gift should take ouch eSSeCt only after Danalo death ami by reaaoh thcraof. @en the stook mm trans- ferrca, Sslbort cay have beooze 'benoficitilly entitled in ex:&ctanoy* to such property, pro- vide& h:zsurvival Dsna, but not othuri;ioo,en& it 0~3sDnna~s intent that he should thus becoma ec';itled,and only to thst extent. It v:aanuah aist and such only, that Txinnmda to hia. &ib&tts 'right of successlon,~ theretore,be- ca&a effective when Dana died, and not t&ore. : A father fr.robust health rtlyit;ake a Girt to hi3 six of proprty, reserving to himeli 3 life iz.:orestthemin. Thle would be 3 gift to take &Sect in enjoyzcnt efter tha fetharts Oeath, and ViOUldba 3 texabla t~zanster. In ro Green, . 153, li.Y. 223, 47 l?.E. 202." It will be roticcd that ,thaTexas statuta (Artiole 7117) in-

the sane. , A note In 28 Haxvarb Law Rsvlew 437 discussesthe c3sa OS In re William B. DetoaGonqany, supm, an3 approves t& holi1ingin the ease with this 8tntoxent: "The prinolpal' case (Dam case), therefore, 10 aloorly correct. . .* ??earc not passing.on whether or hot there wsuld be an ixhcr~tencetax du3 under the Tesos law ir respect of l;ro?artyacquire& by survivorshi?in case of a joint tenancy if oocsiaoretlochad been paid Sor its oreatiou, such as in 3 case w;?,ei’e a third party ha convoyed prossty Sor ootslder- ct.ieato tzo or c!orepersons 38 joht tenants, or where one r,orson paid amther pxmn 9.-1dorstlon a WA... to create a joint temmy with said two parsons as joint tehaats. Vieare only, ~:3::13Goh this cam in which the survivor,Gertrutiak, Xor- row, succeeciodto her interest by what we believe to be 3 Gift from Earr~ I. Uorrow..

851 Honorable Oeofge H. Sheppard,Pnge 9

Tar ths reasons stated above, it ir our opinion that the ous-half interest whloh aasoendeb frolnthe husband to the wife upon the huabaad*edeath wag subje.ot to a State lnhoritanoe tax. Tbt Intorest would be aeasurea by taking one-half of the value of all of the etook in question at ths time of Harry X. fi6orrow*a death. We am enslosing with this opinion your tike on thie quaetion.

Pours Ywy truly

ATTOIWXY CENJSRAL OF TXXAS /3