Sec. 135. Will under Contract to Leave by Will.

Interests under a will made in pursuance of an ante-nuptial contract to leave by will are subject to the inheritance tax where the testator had during his life a discretion to use his own property,1 but not where the contract creates vested interests in the beneficiaries, as then their rights accrue under the contract and not under the will.2

1 The testator died in 1901 leaving a will, and the inheritance tax was compromised by the executor. An action was brought relying on an ante-nuptial contract with the testator to leave by will certain property, which agreement the testator had failed to fulfill. The action ended by a judgment for the plaintiff, and the court ordered the executors to turn over to the plaintiff the property covered by the contract. The court holds that this transfer is subject to the inheritance tax, as it was not a contract to convey, but a contract to make a will. Had the deceased performed his agreement and bequeathed the property the estate would have been subject to the tax. It does not affect the question of the liability of the estate to taxation that in consequence of the failure of the testator to carry out his promise the beneficiary was obliged to resort to a court for relief. The judgment of the court converts the devisees or heirs at law, as the case may require, into trustees for the beneficiary under the original agreement. Therefore the devolution of the property has in fact taken place under the will and such devolution is subject to the transfer tax. In re Kidd, 188 N. Y. 274, 279, 80 N. E. 924, reversing 115 N. Y. App. Div. 205, 100 N. Y. Suppl. 917.

A husband bought and paid for a house and lot which he had conveyed to his wife on the understanding that she should make her will devising the property to him in case she died before he died. Pursuant to this understanding she made her will and died February 20, 1866, and the court holds that the inheritance tax should be assessed on her estate. The legal title to the property and the ownership were in her when she died. "The fact that the will was made on account of an agreement to that effect by the wife when she took her title rendered it none the less an instrument creating a beneficial interest in the husband on her death, and that under the statute is the succession to be taxed." Ransom v. United States, Fed. Cas. 11, 574.

The testator made an agreement to leave property by will in consideration of care and support to be given him for the rest of his life and he made a will carrying out the agreement. The court finds that this is not a "bona fide purchase for full consideration for money or money's worth made . . . to take effect . . . after the death of the grantor." The court finds that the devisee took no title in her lifetime, but that the words quoted applied only to a deed and not to a will. As the will was made and allowed the devisee is bound by an effective performance of the agreement and must take compensation under the will, and as an incident of the transfer of the estate to her she must suffer the assessment of the tax. The court suggests that for actual disbursements incurred in the service the devisee may well be a creditor of the estate. In re Perry (Mass. Middlesex County Probate Court, July, 1911).

2 Where in 1899 the testator entered into an ante-nuptial contract in writing, by the terms of which in consideration of his marriage he agreed to provide for

her by his last will and testament in case she survived him, the court holds that a provision under his will is in the nature of a debt and is therefore not subject to taxation under the transfer tax law. In re Baker, 178 N. Y. 575, 70 N. E. 1094, affirming 83 N. Y. App. Div. 530, 82 N. Y. Suppl. 390, 38 Misc. 151, 77 N. Y. Suppl. 170.

The testator devised all his property to his mother and entered into a written contract with her that in consideration of the devise she would leave by will onehalf of the property she received to A. B. The testator died leaving his mother surviving and on her death she devised the property in accordance with her contract. The inheritance tax act was passed after the making of the contract by the mother and before her death, and the court holds that the property passing to A. B. is not subject to the tax. The court says that reading the will and contract together as they must be read, the mother took a life estate only with an obligation to leave by will to A. B. and that therefore A. B. really took under the will of the testator and not under that of the mother. The court relies on Emmons v. Shaw, 171 Mass. 410, 50 N. E. 1033, and In re Lansing, 182 N. Y. 238, 74 N. E. 882, in both of which cases the exercise of a power to appoint by will was referred to the original will and no tax is levied where the statute was passed after the original will went into effect. Winn v. Schenck, 33 Ky. L. Rep. 615, 110 S. W. 827.

Sec. 136. Advancements.

Advancements are subject to the inheritance tax, as they are not made on valuable consideration.

Sums lent in advance to the sons are not regarded as advancements, but they are claims belonging to the estate, and hence they are subject to the inheritance tax. In re Bartlett, 4 Misc. Rep. 380, 25 N. Y. Suppl. 990.

The United States statute of 1864 covers an advance made by a father to his son, as it is a gift made without valuable or adequate consideration. The fact that the son was named in his father's will does not give him any vested or contingent estate but is a bare possibility not assignable and can therefore not be made the basis for a consideration. United States v. Banks, 17 Fed. 322.

Long prior to the death of the testator he advanced to the beneficiaries on account of their legacy at different times sums which aggregated four thousand dollars and took from them their bonds in corresponding amounts conditioned for the payment during his life of an annuity or yearly sum equal to the interest at six per cent on the advancements. The court holds that this was really a device to evade the tax and its meaning that the testator should receive a life income from his legacy and that full enjoyment of the principal should be had by the legatee only after the testator's death. In re Conwell, 5 Pa. Co. Ct. 368, 22 Wkly. Notes Cas. 183.

A deed for services may well be found to be made on adequate consideration and therefore not subject to the tax,' but the tax is due where the grantor transferred by deed all his real and personal prop

erty in consideration of the grantee's services rendered and to be rendered, in trust, nevertheless, for the use and benefit of the grantor during the term of his natural life, and at his death to become the property of the grantee absolutely. There was a collateral agreement to the effect that the grantor during his life should have the right to use any portion of the properties mentioned, and as the grantee never got full title, the tax must be assessed.2

Where a legacy is stated to be for services, the legatee should renounce his legacy and prove as a creditor, as otherwise he will be taxed as a legatee.3

1 United States v. Hart, 4 Fed. 292.

The testator's wife died in 1897, leaving a daughter thirty-five years old, who was a deaf mute. After the death of the mother a companion for the daughter who had lived in the family married, and thereafter the testator entered into a contract with another companion whereby in consideration of her continuing to act as companion of and caring for the daughter as long as the daughter lived, the testator undertook to convey and transfer to the daughter all the property he possessed. The comrade faithfully performed her part of the contract until 1904, when the daughter died and the testator conveyed from time to time various parts of his property to the companion. It appeared that the companion had exclusive dominion over the property. The testator was seventy-four years old when he made the agreement, but he was in good health though not strong. The testator might well expect the daughter to outlive him; but he did not transfer his property to his daughter or in trust for her. Instead he sold it in consideration of a contract for her care, the performance of which began and was finished in her lifetime. The motive for transferring the property was not his impending death but his desire to provide for his daughter's future whether he lived or died. The contemplation of death must be the impelling motive without which the conveyance would not be made, in order to subject a transfer of property to the inheritance tax. People v. Burkhalter, 247 Ill. 600, 93 N. E. 379.

The person claiming exemption for services must show that they equalled in value the amount transferred. State Street Trust Co. v. Stevens, 209 Mass. 373, 95 N. E. 851.

2 In re Skinner, 45 Misc. 559, 92 N. Y. Suppl. 972 (s.c. 106 N. Y. App. Div. 217, 94 N. Y. Suppl. 144).

The testator gave a legacy to a doctor in view of his care and services during the testator's years of sickness “without asking any reward for services rendered, as he knew my means were somewhat limited."

"By neglecting to present any account to the executor, or prove any claim against the estate, and having accepted the gratuity which the deceased provided for him in her will, it was the duty of the executor, on its payment to him, to deduct therefrom the tax which had been assessed by the surrogate. If he desired to escape the payment of the tax, or was dissatisfied with the amount of the legacy, he should have established his debt, if he had any, against the estate, and had it paid by the executor in the usual manner, and let the legacy to him go into the residuary assets.

"The times have been

That, when the brains were out, the man would die,

And there an end; but now they rise again,

With twenty mortal murders on their crowns,

And push us from our stools.'

So, in the settlement of estates, the legal skeletons of stale claims and outlawed demands stalk forth from their charnel houses and their graves, and seek to push from their stools the guests whom the testator has invited to the feast." Per Kennedy, S., in In re Doty, 7 Misc. Rep. 193, 56 N. Y. St. 626, 27 N. Y. Suppl. 653, 656.

Sec. 138. Support.

A deed made in good faith in consideration of the support of the grantor,1 reserving the right to reside on the premises,2 is made on a valid consideration and is not subject to the transfer tax. So where the testator, in 1900, joined with his wife in making a deed of real estate to the son of his adopted child in consideration of support for himself and his wife for the rest of their lives, and the son carried out the contract faithfully, and the testator died in 1906, having by his will provided that certain expenses should be paid out of the personal estate and not by the son as the contract required, the court holds that the property so transferred is not subject to the inheritance tax. The son took immediate possession of the land and continued to occupy the same down to the date of trial. The son paid the taxes on the land, had full possession, and the testator never claimed ownership after the conveyance, in fact expressly disclaimed any interest in the land, and many times asserted that it belonged exclusively to the son. It was not suggested that these arrangements were for the purpose of defeating the inheritance tax.3

1 In re Hulse, 15 N. Y. Suppl. 770 (“in consideration of a home for me at his house during my life").

2 In re Hess, 187 N. Y. 554, 80 N. E. 1111, affirming 110 N. Y. App. Div. 476, 96 N. Y. Suppl. 990.

'Lamb v. Morrow, 140 Iowa 89, 117 N. W. 1118, 18 L. R. A. ( N. S.) 226.

§ 141.

When Power is Created before Passage of Statute.

§ 142. Immaterial Whether Power Created by Will or by Deed.

§ 143. Where Appointment is to Same Persons Named in Original

Instrument.

Sec. 139. In General.

Powers are usually treated in inheritance statutes as merely designating interests under the will of the original decedent. A tax on interests under a power created by will should be treated for the purposes of the inheritance tax as though the interests arose under the will itself. Therefore relationship must be reckoned as from the original decedent and not from the donee of the power.2 Some statutes, however, notably New York, assess the tax on the exercise of the power itself, and in such states the fund is treated for taxing purposes as passing from the donee directly to the beneficiary,3 and remainder interests under the power are taxable only on the exercise of the power and not as a remainder under the original will. Such a tax must be on the value of the property transferred under the power.5 Where the donee of the power of appointment in her will gave a direction to repay a loan heretofore made to her out of the fund over which she exercised her power, this is a transfer to the creditor, and was taxable under the New York statute of 1897.6

Where the testator gave property to his wife to be disposed of as she might think proper without any remainder or trust being created, this was an absolute estate to the wife, and therefore on her death, without exercising her power, there was no reason for levying a tax on the heirs of the original testator."

The value of an estate subject to a power should be deducted in reckoning the value of remainder interests. A will gave a certain estate in trust to pay the income to the wife for life, the remainder to the nephew; but the codicil gave the wife power to appoint the