NE                  NE

                                           E

PRICE   DANIEL
ATTOHNEY GENERA,.




          Hon. Ciev. H. Sheppard
         ,State Comptroller  of Public   Accounts
          Austin, Texas                                 Opinion No. V-552

                                                        Re:   Whether estate in real
                                                              Property conveyed by
                                                              deed expressly   provid-
                                                              ing conveyance   shall
                                                              take effect at death of
                                                              grantor is subject to
                                                              tax on grantor’s  death.

          Dear Sir:

                    You have sent us your complete file on the Estate of J.W.
          Everman and the brief of the attorneys representing    the estate.
          .The file and brief apprise us of the following facts:

                    On or about May 10, 1929, J. W. Everman executed a deed
          of conveyance   of his homestead to his daughter, Marie Everman.
          This deed was in the form of a general warranty deed except that
          it contained the following protision:

                     “This conveyance   shall take effect at the death
               of the grantor herein, that is, this .cunveya~~cc shall
               be construed as a conveyance     and a deed vesting an
               estate in praesenti to c cmmance in future upon the
               death oft the grantor ~n

                      This provision appears following the description       of the
          property    conveyed and immediately    before the habcndum        clause.

                      The deed was properly    signed    and acknowledged.

                    On or about May 10, 1929, J. W. Everman delivered the
          deed to Marie Evsrman,    who placed it in a safe deposit box held
          in the nime of J. W. Everman and Marie Everman        in a Dallas bank.
          The deed was not recordcd~ until afte+ the death of J. W. Everman.
          After the date of the conveyance,  Marie Everman continued to live
          with her father in the homestead  until~ his death. Sarah Duke, a
          lifelong friend of Miss Everman,   l&d    with them.  During this pe-
          riod both Miss Duke and Miss Everman sxpend?d’considerabls         sums
          of their gwn money on improving the property and on general upkeep,
                                                                          ,




Hon. Geo.      Hi. Sheppard,    Page   2 (V-552)




although Mr. Everman paid the taxes.   Miss Everman,    her sister
Mrs. Saville, and Miss Duke have stated that after delivery of the
deed Mr. Everman tcPld everyone that the house belonged to his
daughter Marie Everman.

             The attorneys for the Everman estate contend that no in-
heritance taxes are due on the property so conveyed, basing this
contention on several propositions,        the first being that the instru-
ment dated May 10, 1929, should be construed as a deed of convey-
ance and not as a will.        With this contention we agree, and consider
that the instrument       is so clearly operative as a deed of conveyance
that we will not discuss this aspect of the problem in detail.          For a
discussion     of the features which distinguish a valid conveyance of
an estate of freehold or inheritance to commence           in future from a
testamentary       instrument,   see 14 Tex. Jur. pp. 755-759,    p. 939, and
particularly     Turner Y. Montgomery,       Tex. Comm. App. 293 S.W. 817;
North v. North, 2 S.W.2d 482; Texas Pac. Coal and Oil Go. v. Bruce,
2-33 s . w . 535 .

          The second propobition is, in effect, that since the instru-
ment is operative as a deed, in view of its nature and the facts of
the case no inheritance tax is due the State of Texas under Article
7117, V.C.S.

             The relevant      provisions   of Article   7117, V.C.S.,   are as fol-
lows:

              “‘All property within the jurisdiction     of this State,
        real or personal,    . D Dand any interest therein, ~ D 0
        which shall pass absolutely     or in trust by will or by
        the laws of descent and distribution.      1 0 or by deed,
        B,rant, sale, or gift made or intended to take efiect in
        possession    or enjoyment after the death of the grantor
        or donor, shall, upon passmg . ~ . be SubJect to a tax
        . o.    [timphasls  added)

          The tax levied by the provisions  of the above Article   is a
“special tax,” Lewis Y. O’Hair,   130 S.W.2d 379, imposed upon the
right to receive property or the right of succession   as distinguished
from the right of transfer.  State v. Hogg. 123 Tex. 568, 70 S.W.2d
699, 12 S.W.2d 593.

          If a tax is due in the instant case, it is by virtue of the
phrase (underscored     in the above quotation) which taxes the trans-
fer of property “‘by deed . . , made or intended to take effect in pos-
&ssion   or enjoyment after the death of the grantor or donor. . .”

             The attorneys for the Everman Estate argue that *after de-
livery    of the deed of conveyance  by MP~ Everman to Marie Everman,
Hon. Gee.   H. Sheppard,   Page   3 (V-552)




. . . Marie was not only vested with the fee simple title and, owner -
ship of the property,   but she also had and continued to have, com-
plete and physical possession    of the property, with the full acqui-
escence of her father, from May 10, 1929, until her father’s death
. , .; and that an inheritance tax is not due the State of Texas on
said property, as nothing passed to Marie after the death of the
granter. ”

          It is therefore necessary    to ascertain the extent of the
interest conveyed by the deed. As we have previously         stated, the
deed was in the form of a general warranty deed, and, except for
the quoted provision relating to the time the conveyance was to
take effect, would have transferred     an the date of its execution
and delivery a fee simple title and complete ownership of the home-
stead property to Miss Everman.        However, the grantor specifically
provided that “this conveyance     shall take effect at the death of the
grantor.”

         At common law. “an estate in remainder       expectant on the
death of the grantor may not be created.    Now, by a remedial     stat-
ute, am estate in land may be created by deed to commence       in future.”
14 Tex. Jur. 883,   This statute is carried as Article 1296, V.C.S.,     and
reads as follows:

          “An estate or freehold or inheritance may be made
     to cemmence    in future, by deed or conveyance, in like
     manner as by will.”

           The authorities   are to the effect that, strictly speaking, the
“statute. . . has reference    to estates in expectancy other than estates
in reversion    and remainder.”     Glen,v. Halt et al, 229 S.W. 684, 687
and author ities,-cited therein.   %y virtue .of its previsions    “a *ted
may be se-& aan that-~ttrmrmxys the land as ~from the time of tke
death of tbc-(FmtPr;    and unless an express reservation        is made, or
an express    condition is declared,    that the land may be otherwise
disposed of by the grantor, the instrument is construed as being
operative in praesenti in the sense that it iS irrevocable.”         14 Tex.
Jur. 875.    “The estate so crtated     may be vested in the grantee either
absolutely   or upon a contingency,     and the grantor’s   death may be des-
ignated as the time when the estate is to fall into possession.          When
the time designated by the grantor has arrived and the contingency
(if any) has happened, a complete title, in the sense of a right to pre-
sent enjoyment of the estate, becomes         vested in the grantee.    Not-
withstanding,    however, that the enjoyment of full title and possession
by the grantee is thus deferred,      unless the right to make other dis-
position of the property has been reserved         by the grantor, the grantee
is held to have a present vested interest.”         14 Tex. Jur. 883.

         In the light of these authorities     the language employed in the      I
deed could not be freer from ambiguity        nar mere specific.  By its
Hon. Gee.   H. Sheppard,     Page 4 (V-552)




terms h&it      Everman     trek a presently   vested interest in an es-
tate in fee simple which was “to cemmcncc           in future upen the
deatk lf the grantor. * We are of the opinion that the legal effect
of the interest l r estate conveyed by this deed cannot be varied
by evidence outside its terms. . +fcCfrmick         and gay, Tef~s L;w
of Evidence,    g 739, and authorrtres cited theram.       There     re t e
information   submitted which bears en what various parties thou ht
had been conveyed cannot be considered;          ner dars the fact t&s
Everman. continued to live with her father and had, in that sense,
 ‘possession   s,$td enjoyment” of the preptrty affect the extent of
her legal interest.     Moreover,    we do not see that the pessessien
and enjoyment     of the property which Miss Everman had after the
deed was executed was particularly        different from that which she
had previously     enjoyed as daughter af the house.       Xf an estate in
fee simple to commence        in future upan the death \rf the granter is
within the provisions     o$ Article 7117, an inheritance tax is due the
 State of Texas on this property.

           The Texas statute is net limited to gifts “intended to take
effect at death” (such statutes apparently only include gifts pes-
sessed by the donor at the time of his death, 49 A.L.R.               g65), but
extends to transfers       ‘“made er intended to take effect in pesscs-
sion o r enjo y m e nt a t l r after death.”    In states having similar
provisions   the “courts have consistently          taken the view that res-
ervation by the transferor         of the beneficial interest during his
life in property transferred         inter vives operates to render the
transfer one intended te take effect in possession            l r enjoyment
at death witbin the meaning of applicable estate or inheritance
tax statutes.”    159 A.L.R. 244, and authbrities    cited therein.       The
courts have variously        phrased’but    uniformly annouwced that the
“very purpose ef L provision          in an inheritance tax law imposing
a tax on transfers      intended ,to takes eftect in possession•r         enjay-
ment at or after death is to establish a bar to frequent              attempts
to transmit estates to beneficiaries,          unimpaired by the payment
of inheritance taxes, by means of trusts or canveyances                where-
by the grantor reserves         the beneficial   enjoyment of the property
during his life. ” 49 A.L.X*         901. In mast of the cases we have ex-
amined the grantor has expressly           reserved    P life estate,    l r has
created a trust reserving         life income ta the settler,     l r b,as made
an absolute conveyance ts the grantee but by separate agreement
secured payment from the grantee in an lm,ount preximrtin                      the
income which might be anticipated to accrue during his life t lone.
However, even if there is a technical difference between these
cases and the conveyance here used, certain it is that Miss Ev-
erman came into complete legal title and the accompanying                    lsgal
right to possession       and enjoyment of the property only at the death
of the grantor.      Pt is the privilege of the receipt of such rights at,
death which the statute specifically         makes subject to tax; and the
courts will look through devices of the conveyancer ,where there
.   .




    Hon. Geo.   H. Sheppard,    Page   5 (V-552)




    is an actual shifting of economic benefit.    Saltonstall  Y. Saltonstall,
    276 U.S. 260, 72 L. ed., 565, 48 Sup. Ct. Rep;,           Moreover,    we
    think that in holding this property taxable we are in line with the
    interpretation  given Article  7117 by the Texas Court of Civil Ap-
    peals in Bethea v. Sheppard, 143 S.W.2d 997, writ refused.         In
    that case the question of taxability turned on whether certain prop-
    erties embraced wit@      a trust estate were transfers     intended to
    take effect in posses&ion and enfoyment at the death of the settlor.
    The Court said:

              “It is not a question of when the beneficial     in-
        terest is created, but the tax is imposed upon the
        right to receive in possession      or enjoyment after
        the death of grantor or settler.      In consequence,    a
        grantor or settlor may create an irrevocable         trust
        during his lifetime,    still if he postpones the right
        of possession    or enjoyment of the beneficiary      until
        after grantor’s    death, the property or any interest
        therein is subject to the inheritance      or succession
        tax at or after his death.      Under our statute, where
        either ‘possession’     or ‘enjoyment’ is made contin-
        gent upon the death of grantor or settlor of all or
        any part of the trust estate, such transfer is tara-
        ble. . .”

             We come now to a consideration  of the third proposition
    proposed by the attorneys for the Everman Estate.    We quote from
    the submitted brief:

              “The 5. W. Everman Estate contends that if
        Marie Everman,      at the tim~e of the delivery of the
        deed of conveyance     executed by J. W. Everman to
        Marie Everman,      was vested with a fee simple title
        to the property subject to a contingency or life es-
        tate in J. W. Everman,     as contended by the examin-
        er, then Marie Everman was vested with a much
        greater interest in the property than J. W. Everman,
        since Marie Everman heretofore         possessed the title
        and ownership,    together with the then enjbyment and
        possession   of the property, and J. W. Everman had
        only a contingent interest or a life estate; which
        property had been maintained,       repaired and kept
        improved by Marie Everman and Sara Duke, with
        the result that the alleged contingent interest or
        life estate reserved    by J. W. Everman amounted
        to a very small interest in the property.

              “Since Marie     Everman had by far the greater
         of the two estates    or interests in the property, then
Hon. Geo. H. Sheppard,     Page   6 (V-552)




     the tax due the State ef Texas by the estate, lr by
     the recipient of the property,   at J. W. Everman’s
     death, could be only that amount assessed     against
     the interest reserved    by J. W. Everman in the ekcy
     af conveyance,   . . .I’

            The argument is alse made that this measure rd taxabil4
ity must result in view rf the fact that Miss Everman’s        interest
was a vested lne prior to the death of the grantor since the tax
is on the “right to receive as distinpuished      from the right Uf
transfer.”     In Reish v. Corn., 106 Pa. 521 the deccQent had 8xea
cuted a deed l    m    his property to his brother who saw a Iran&
conditioned on paying the income from such property to the
pantor     for life. A tax was imposed on the full value d the pr@p*
erty, and it was contended that this was error since the decedent
was not seised and possessed       of the property cevered by tha deed
within the meaning of the applicable act, which crntainal        a previa
sion covering transfers     intended to take effect at death that was,
in effect, t he exact previsien found in Article     7117. The Caurt
said:

          “The vice of the argument.    . . is in assuming
    that in order to charge an estate, transferred      by
    deed., with an inheritance tax, the grantor must, at
    tht time of his death, have same title l r estate re-
    maining, and that such title a+ estate only as the
    granter actually owns, at death, is subject to the
    tax. A very lobered and ing+ous         argument is
    made to show that @eccdenJ/       did net die seised
    or possessed    of any estate, excepting the bend an&
    the right it secured; that these only shauld have
    been appraised.    . . The letter as well as the spirit,
    and meaning of the act, however, is clear,        When an
    estate is transferred   by deed. ~ . intended, however,
    to take effect in enjoyment at the death of the grantor,
    it is the value of the lands se transferred     which is
    liable to the duty, not the value sf the interest er
    part remaining.”

          We are in accord with the views as above expressed       and
hold that in computing the inheritan~ce taxes due the SLttc this cs~-
tate in fee simple, which came into possession     and enjoyment It
Mr. Everman’s     death, should be valued as an estate in fee simple.
We de not mean to say that the amounts expended by Miss        Duke abd
Miss Everman have no bearing on the amount lf the ta% which will
ultimately be paid;    This question was net specifically  pradenttd,
and we therefore   have not considered   it.
Hon. Geo. H, Sheppard,   Page   7 (V-552)




                            SUMMARY

          Where deed conveyed an estate in fee simple to
    take effect in futuro upon the death of the grantor, said
    estate is subject to inheritance tax under Article 7117,
    V.C.S.,  as property passing by deed to take effect in
    possession    or enjoyment after the death of the grantor;
    ad the value of the interest received is the value of the
    estate in fee alimple rather than the value of the grantor’s
    retained   interest.


                                            Yours   very truly

                                ATTORNEYGENERALOFTEXAS




                                       Mrs.    Marietta   Creel
                                              Assistant
MC/JCP


                                APPROVED:




                                     TORNEYGENERAL
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