District Court Applies Tax Exception to Declaratory Judgment Jurisdiction (6/1/20)

In Rivero v. Fidelity Investments, Inc. (E.D. Tex. 5/19/20, Memorandum Opinion & Order Dtd 5/19/10), GS here, the Court held that the tax exception to its declaratory judgment jurisdiction precluded a declaratory judgment that an IRS Form permitting transfer of title to a financial account was not necessary.  In summary, the plaintiff had a financial account in a joint tenancy with right of survivorship (JTWROS) with a nonresident non-citizen, Medrano.  (The relationship between Rivero and Medrano is not given.)  Medrano died.  Rivero sought to have the financial institution (Fidelity) transfer the JTWROS account to her sole name, because she was the sole owner as the survivor.  Fidelity requested that she provide a Form 5173, Transfer Certificate Filing Requirements for the Estates of Nonresidents not Citizens of the United States, here.  The transfer certificate requirement is a back stop to insure that nonresident non-citizen estate tax, if any, is paid.  Basically, the Court said that, in order to declare that the transfer certificate was not needed for Fidelity to transfer title, it would have to determine that no estate tax was due.  And that ran afoul of the tax exception to the declaratory judgment statute.

  

The opinion does not state whether the account, although titled JTWROS, was beneficially owned by Rivero before Medrano's death because she was the source of the assets in the account.  If she owned the assets, then presumably Fidelity could effect the transfer to her sole name without potential liability.  Note in this regard that such right of survivorship titling is often use as a method to transfer ownership at death and, at least as between the parties, does not transfer ownership until the owner dies.  If that were the case, then there would be no estate tax due with respect to the asset because Medrano had an expectancy at best.  

I wonder, therefore, whether Rivero could have brought a proceeding in the state court to declare the pre-death ownership of the asset.  Of course, that might not be an adversarial proceeding and the IRS might not be bound to accept the determination.  But that proceeding might give Fidelity enough cover that it might agree to transfer without further ado.  Or Rivero might still try to work through the IRS to show that there is no estate tax due and obtain an appropriate transfer certificate.

Still another possibility, I suppose, would be for Rivero just to withdraw the assets which, I suppose, her joint tenancy may have given her the power to do (subject to any state law requirement precluding that upon the death of the other tenant).