enjoyment was postponed till the happening of that event. What-‍ ever interest they may have had before, the right to possession and enjoyment depended upon the death of the donor. Green, 153 N. Y. 223, 227; 47 N. E. 292, 293.)?

(Matter of

"While there was a valuable consideration for the lease, the transfer of the corpus upon the death of the father was without consideration. The agreement was testamentary in character. The will, executed the same day, supplemented the agreement. It disposed of all his other property. As was said in Matter of Dana, 215 N. Y. 461, 465; 109 N. E. 557, 559: 'In the present case, however, the trust instrument took effect precisely as would a will bequeathing the stock which it conveyed; and the fact that the testator thus withdrew a portion of his property from the operation of his will does not prevent that portion from being a part of a transfer to the same parties, taking effect upon his death, to be combined with their legacies under the will.' To this effect are also Matter of Bostwick, 160 N. Y. 489; 55 N. E. 208; Matter of Cornell, 170 N. Y. 423; 63 N. E. 445.

"The time when the tax accrues-that is, when the transfers take effect-would seem to be the test whether transfers made by different methods or instruments should be taxed separately or combined. (Matter of Hodges, 215 N. Y. 447; 109 N. E. 559.) Under this rule, I think the entire transfer should be treated as a whole, and only one exemption of $5,000 to each, the widow and son, allowed."

One-fourth of the inheritance tax statutes now provide that a transfer taking effect at death must be upon adequate consideration to escape the tax, and several of them add that the consideration must be in money or money's worth. The statutes of California, Colorado, Delaware, Georgia, Kansas, Maine, Massachusetts, Nevada, Rhode Island, Vermont, Wisconsin and the Federal act so provide; but in the States where there is no specific provision to the effect the rule of the Orvis case will probably prevail, as these provisions would seem to be declaratory of the interpretation to be placed upon the language common to all the statutes. This is the trend of the authorities construing the provisions as to adequate consideration.

In the Estate of Reynolds, 169 Cal. 600; 147 Pac. 268, the court held that the amendment served to clarify but not to change the pre-existing law and applied it to a case arising prior to the amendment. A father suffering from a mortal disease transferred his department store, valued at $100,000, upon consideration that his

son should assume the debts amounting to $30,000 and pay the father $600 a month during life. The court said:

"If it can be said that there was any element of valuable consideration received back by the father for his transfer to the son, it was certainly not adequate from any commercial point of view. He was in failing health at the time the gift was made. It was known, and he knew, that his. tumor had returned and that the days of his life were numbered, and the agreement to assume an indebtedness of $30,000 in consideration of a gift in value exceeding $100,000, and the further agreement to pay $600 a month during the donor's life (which agreement itself does not seem to have been observed), certainly do not measure up to the requirements of the law of a valuable and adequate consideration. Indeed, it seems to be quite plain that, as in the case of the widow, so in the case of the son, the father in contemplation of death was transferring by gift instead of devise the valuable business which he owned and had theretofore conducted.'

Since the Reynolds case the California courts have had the question up in several proceedings, and have adhered to the rule that the consideration must be adequate to escape the tax where the transfer takes effect at death.

Where the agreement was to pay the dividends to the transferor on part of the stock transferred, it was held a valuable but not an adequate consideration, and therefore the transfer was taxed. Felton's Estate, 176 Cal. 663; 169 Pac. 392.

Where the consideration expressed in the deed was $10, and the land was shown to be worth over $550, and there was no proof of consideration other than that expressed in the deed, the transfer was held taxable.

Abstract Title and Guarantee Co. v. State, 173 Cal. 691; 161 Pac. 264.

A similar amendment to the Massachusetts statute has received a similar construction:

A widow advanced in years and in feeble health desired to secure during life the services and companionship of a certain man, fifty-four years of age, who was employed as a traveling salesman at a salary of $2,200 a year in addition to his traveling expenses. In consideration of his resigning this position and removing with his wife to the widow's residence, where they continued to live and to care for her until her death, the widow deposited with a trustee $100,000, face value, of 32% bonds of the Commonwealth of Massachusetts, with a declaration of trust

directing the trustee to pay the income during her life in equal shares to the man and his wife, and upon her death to transfer the bonds to them in equal shares absolutely if they both survived her, or, in case, at the time of the settlor's death, either of the beneficiaries should be dead, to transfer the whole of the bonds to the survivor, or, in case the settlor should survive both the beneficiaries, then at her death to transfer one-half of the bonds as one of the beneficiaries should have appointed by his will and the other half as the other beneficiary should have appointed by her will, or in default of appointment by either of them, to his or her next of kin. At the time of the settlor's death the bonds had an actual market value of not less than $90,000. Upon a bill in equity by the trustee for instructions, it was held that the transfer of the bonds under the deed of trust did not constitute "a bona fide purchase for full consideration in money or money's worth" within the exception contained in St. 1909, c. 490, Part IV 1, and consequently that the transfer was subject to a succession tax under that statute.

State Street Trust Co. v. Treasurer, 209 Mass. 373; 95 N. E. 851.

4. Burden of proof.

A recent case in California holds that the burden of proof is on the Comptroller to show want of consideration.

"The act in question does not impose a tax generally upon transfers made in contemplation of death or intended to take effect in enjoyment after death, It imposes a tax only upon such transfers when made without valuable and adequate consideration." The absence of the consideration is just as essential to the obligation to pay the tax as the contemplation of death or the intention of the transferrer that the possession or enjoyment shall be postponed until death."

McDougald v. Boyd, 172 Cal. 753; 159 Pac. 168.

Though the California statute was amended in 1917 with this decision in view, the courts of that State still hold that the burden of proof is on the State officials to prove that the consideration was not valuable or that it was inadequate.

Nickel v. State, 179 Cal. 126; 175 Pac. 641.

This would seem to make the task of the State's taking officers a difficult one and to open the door for litigation. There is some doubt as to the rule in New York. Where the question arose over

the taxation of a joint account the court said in a recent case: "The record does not disclose who furnished the money which was deposited to the joint credit. Nothing indicates that the succession in this case was not donative in character (Matter of Orvis, 223 N. Y. 1, 7), and we may well reserve consideration of the application of the statute to a case where the survivor had previously acquired his interest for value."

Matter of Dolbeer, 226 N. Y. mem.; 123 N. E. 387.

It would therefore appear that there was no presumption in favor of the estate that there had been a transfer for value and that the burden was on the executor rather than on the Comptroller to show that property, once shown to have belonged to a decedent, had passed out of the estate for valuable and adequate consideration.

CHAPTER VIII.

LIFE INSURANCE.

1. Not generally taxable.

2. The Federal statute.

3. Rulings by the state courts.

4. Nature of the contract.

5. No title to fund in assured.

6. The insurance company pays the taxes.

a. State taxes.

b. Federal taxes.

7. Proceeds taxable as inheritance when payable to estate.

8. Where payable to beneficiary not taxable.

9. Construction of policies.

10. Statutory provisions.

Life insurance has become important in inheritance taxation from a peculiar angle. Its non-taxability as a contract taking effect at death when payable to a beneficiary and not to the estate is reviewed at length in the subsequent pages, but its importance to estates lies in the fact that it can be relied on to produce ready cash with which to pay Federal and State inheritance taxes.

One of the chief hardships produced by these taxes is the immediate demand upon the funds in the hands of executors to meet them.

It too often happens that ready money is not available and valuable securities or encumbered real estate have to be sacrificed at a forced sale. The requirement that the Federal tax be paid out of the residuary estate without regard to the beneficiaries. unless the testator otherwise provides in his will often defeats the most beneficent and just intentions.

This has led to the wise practice of providing a sufficient fund to meet all inheritance taxes by insurance payable to the estate. Such insurance will, of course, have to bear its portion of the tax percentage-but if made available and the will directs that the inheritance and estate taxes all be paid out of the insurance fund thus provided, many estates will be preserved intact that otherwise would have to be sacrificed. It is to this feature of insurance that the authors wish to direct specific attention.

1. Not generally taxable.

The transfer to the beneficiary of the proceeds of a life insurance policy is not taxable as an inheritance. Neither is it a contract