43

§ 102. Amount of Tax on Contingent Remainder.— In determining the amount of the inheritance tax on contingent remainders, the court should take the highest amount that in any contingency would become liable to the tax. The tax becomes due and payable, it has recently been decided in Minnesota, when the beneficiary enters into actual possession and enjoyment of any portion of the bequest which exceeds the statutory exemption, that is, the tax may be assessed and collected on installments; and the tax so accruing must be computed upon the value, at the time of the decedent's death, .of the right to receive the amount actually paid upon the date of its payment."

§ 103. Law Governing Tax-Retrospective Statute. The question which law, in point of time, governs the

life, the collateral inheritance tax, New York state transfer tax, and United States war tax are not payable out of the principal of the estate, but are to be deducted by the trustees from the gross income, after which the net income is to be divided in equal shares among the life tenants.

43 People v. Byrd, 253 Ill. 223, 97 N. E. 293. Said the court in this case: "A possible contingency here is that three of the four devisees named may die before the widow, leaving no issue. In that contingency the one survivor would receive all of the estate, for the reason such one would be the only representative of the class living at the time the estate vests. The court below did not adopt this rule, but supposed the possible contingency that two of the children named should die without issue before the widow, leaving two survivors of the class to take the estate. The court then divided the devise equally between the two supposed survivors and deducted twenty thousand dollars from each share to arrive at the amount of tax due. Under the rule requiring the court to adopt the highest amount that in any contingency can pass, the amount here was subject to only one deduction of twenty thousand dollars. No case involving the construction of the inheritance tax law in this regard has heretofore come before this court, but our statute in this respect is identical with the statute of New York. Section 230 of the New York statute (Consol. Laws 1909, c. 60) has been construed by the court of appeals of New York in accordance with the views herein expressed: In the Matter of Vanderbilt, 172 N. Y. 69, 64 N. E. 782; In the Matter of Brez, 172 N. Y. 609, 64 N. E. 958."

44 State v. Probate Court, 112 Minn. 279, 128 N. W. 18.

imposition of inheritance taxes on the transfer of remainders is one on which the authorities are somewhat at variance. Some courts take the view that the law in force at the time of the death of the donor determines whether the remaindermen are liable for any tax, and, if they are, the extent of the liability; and, moreover, that after a remainder has vested free from taxation upon his death, the legislature cannot, without offending constitutional principles, impose a tax to take effect when the remaindermen come into possession or enjoyment of their estate. Other courts, however, take the view that the privilege of succession is not fully exercised until the life estate is terminated and the remainderman comes into the possession or enjoyment of the property; and that until that time arrives it is competent for the legislature to change the procedure so that perhaps the tax is made more burdensome than it would have been under the law in force at the time of the donor's death, or even, perhaps, to impose a tax where none at all existed at the time of such death."5

45 See sec. 39, ante.

CHAPTER VII.

TRANSFERS IN CONTEMPLATION OF OR TO TAKE EFFECT UPON DEATH.

§ 110. Constitutionality of Statutes Imposing Tax.

§ 115.

§ 114. Consideration of Support of Grantor or Others. Consideration of Services.

§ 117.

§ 118.

§ 119.

Transfers in Contemplation of Death, in General.
Transfers in Contemplation of Death-Illustrations.
Determination of Taxability of Transfer.

§ 124.

Transfers in Trust, in General.

§ 125. Trusts-Reservation of Power to Revoke. § 126. Trusts-Income Payable to Transferees.

§ 110. Constitutionality of Statutes Imposing Tax. Inheritance tax statutes are ordinarily not confined to transfers of property by will or by the intestate laws, but also embrace transfers made in contemplation of the death of the transferrer or intended to take effect in possession or enjoyment at or after his death. The constitutionality of this form of taxation has been assailed on the ground that the classification singling out such transfers for taxation is unreasonable and that the tax in some cases reaches gifts inter vivos. These constitutional objections, however, have been urged in vain. In upholding the constitutionality of

1 Estate of Benton, 234 Ill. 366, 14 Ann. Cas. 107, 18 L. R. A., N. S., 458, 84 N. E. 1026; Estate of Keeney, 194 N. Y. 281, 87 N. E. 428; Appeal of Wright, 38 Pa. 507; State v. Alston, 94 Tenn. 674, 28 L. R. A. 178, 30 S. W. 750.

"We think that there are sufficient reasons," to quote from Estate of Keeney, 194 N. Y. 281, 87 N. E. 428, affirmed, Keeney v. New York, 222

the Massachusetts law the supreme court of that state observed: "We see no difference in principle between property passing by a deed intended to take effect in possession or enjoyment on the death of the grantor and property passing by will. In either case it is the privilege of disposing of property after the death of the grantor or testator and of succeeding to it which is taxed, though the amount of the tax is determined by the value of the property. The constitutionality of the law in regard to taxing property passing by will was fully considered in Minot v. Winthrop, and that case, we think, is decisive of this."

Transfers to take effect in possession or enjoyment after the death of the transferrer are sometimes made with the design of evading the inheritance tax. But aside from any evasion of the law, the taxation of such transfers may be placed on the ground that the property remains substantially that of the transferrer during his lifetime, and does not actually pass to the beneficiaries until his death, and hence the transmission

U. S. 525, 56 L. Ed.

32 Sup. Ct. Rep. 105, "to support the classification made by the statute; at least that the classification cannot be said to be devoid of reasonable ground on which to rest. Inheritance tax laws have been very generally adopted throughout the states of the Union. A substantial part of the revenue necessary to support their governments is now derived from that source. A not wholly unnatural desire exists among owners of property to avoid the imposition of inheritance taxes upon the estates they may leave, so that such estates may pass to the objects of their bounty unimpaired. It is a matter of common knowledge that for this purpose trusts or other conveyances are made whereby the grantor reserves to himself the beneficial enjoyment of his estate during life. Were it not for the provision of the statute which is challenged, it is clear that in many cases the estate on the death of the grantor would pass free from tax to the same persons who would take it had the grantor made a will or died intestate. It is true that an ingenious mind may devise other means of avoiding an inheritance tax, but the one commonly used is a transfer with reservation of a life estate. We think this fact justified the legislature in singling out this class of transfers as subject to a special tax."

2 Minot v. Winthrop, 162 Mass. 113, 26 L. R. A. 259, 38 N. E. 512. Crocker v. Shaw, 174 Mass. 266, 54 N. E. 549.

is essentially similar in that respect to a devolution by testacy or intestacy upon the death of the owner."

§ 111. Purpose of Statutes.-Without a statute taxing transfers made in contemplation of death or to take effect thereon, it is very clear that many estates would pass free from taxation to the same persons to whom they would have passed had the grantor or donor made a will or died intestate, for it is not an entirely unnatural desire, and certainly not one infrequently indulged, for property owners to attempt to evade the inheritance tax and transmit estates to the objects of their bounty unimpaired; and even though the transfer is not actuated by any such motive, its practical effect, so far as the public revenue is concerned, is the same. It is the purpose of such statutes to preclude, so far as possible, this evasion of taxation, whether with fraudulent intent or not, and to secure to the state its revenue on all transfers which have their occasion in the death of the transferrer; but it is not the purpose of the statute to inhibit ordinary transfers, by gift or otherwise, if not made. in contemplation of death or not postponed in enjoyment or possession until after the death of the donor or grantor."

The policy of the law is, that the owner of property shall not defeat or evade the tax by any form of transfer or conveyance, where after death the income, profit or enjoyment inures to the benefit of persons not exempted by the statute.

4 Estate of Lines, 155 Pa. 378, 26 Atl. 728.

5 People v. Kelley, 218 Ill. 509, 75 N. E. 1038; Estate of Keeney, 194 N. Y. 281, 87 N. E. 428; Estate of Thorne, 44 App. Div. 8, 60 N. Y. Supp. 419; Estate of Spaulding, 49 App. Div. 541, 63 N. Y. Supp. 694, order affirmed in 163 N. Y. 607, 57 N. E. 1124; Estate of Brandreth, 58 App. Div. 575, 69 N. Y. Supp. 142; Estate of Cornell, 66 App. Div. 162, 73 N. Y. Supp. 32, order modified in 170 N. Y. 423, 63 N. E. 445. • State Street Trust Co. v. Stevens, 209 Mass. 373, 95 N. E. 851.