reached the limit beyond which the courts cannot go without emasculating the provisions of the statute."7

§ 126. Trusts-Income Payable to Transferees.In some instances the question is further complicated by the fact that the beneficiaries are, by the terms of the trust, entitled to the income, in whole or in part, of the corpus of the estate during the life of the grantor. In discussing this aspect of the question Justice Crosby 5s had this to say: "I believe that the authorities sustain the proposition that a trust deed giving all the income of an estate to beneficiaries for the life of the grantor and the corpus at his death, is, so far as the corpus is concerned, a transfer intended to take effect in possession and enjoyment at the death of the grantor, and therefore taxable. In such a case the beneficiary possesses and enjoys the income during the life of the grantor, but possession and enjoyment of income is not possession and enjoyment of the principal which produces that income. It seems to me that the plain wording of the statute is enough to fix taxability upon the entire corpus of the property passing by this trust deed, even if the entire income derived therefrom had gone to the beneficiaries from and after the delivery of the deed, because, by the terms of the deed, the corpus was intended to pass into the possession and enjoyment of the beneficiaries at or after the death of the grantor. . . . . People v. Kelley," an Illinois decision, seems to be a case exactly in point, and the statute in Illinois is the same as in New York. There the holding was distinctly in favor of the nontaxability of that portion of the trust fund, the income of which was payable to the beneficiary

57 Estate of Bostwick, 160 N. Y. 489, 55 N. E. 210; Estate of Patterson, 127 N. Y. Supp. 284.

58 Estate of Patterson, 127 N. Y. Supp. 284.

5 People v. Kelley, 218 Ill. 509, 75 N. E. 1038.

60

during the life of the grantor. But I do not believe the holding in that case is good law in New York, for in Matter of Cruger " we have a case apparently exactly in point in which the whole trust fund was taxed, although the income to be derived therefrom (except the surplus income, if any, over and above twelve hundred dollars a year) went to the beneficiary during the grantor's life from the time the trust was created. And the court there said, 'the present case seems to fall squarely within the terms of the statute.'"

60 Estate of Cruger, 54 App. Div. 405, 66 N. Y. Supp. 636.

130.

CHAPTER VIII.

EXEMPTIONS FROM TAX.

Constitutionality of Exemptions.

§ 131. Interpretation of Exemptions.

§ 132. Retrospective Operation of Statute.

§ 133. Exemption Based on Valuation of Property.

§ 134.

Manner of Determining Exemption.

§ 135.

Property in Foreign Jurisdiction.

§ 136.

§ 137.

Exemption Based on Relationship of Parties.
Adopted Children.

§ 138.

Persons to Whom Decedent Stood as Parent.

§ 139. Illegitimate Children.

§ 140. Nation, State or Municipality.

§ 130. Constitutionality of Exemptions.-Probably all inheritance tax laws provide certain exemptions, the leading ones being based on the degree of relationship of the parties, the value of the estate transmitted, and the character of the recipient as a charity. It is not uncommon, especially among the earlier statutes, to exempt transmissions to the children and the surviving husband or wife of the decedent; or, if not exempting them entirely, to impose upon them a lower rate of taxation than upon strangers and distant or collateral relatives. This discrimination against collateral relatives and strangers to the blood of the decedent is in harmony with the general sentiment of humanity, and does not offend the constitutional rule of uniformity and equality in the imposition of taxes. The matter of discrimination between persons of different degrees of relationship is one of legislative discretion, limited, if at all, only by the rule of reasonableness and propriety.'

1 See sec. 21, ante.

The equal protection of the laws is not denied by a statute which subjects to the burdens of an inheritance tax the brothers and sisters of a decedent, while exempting there from strangers to the blood, such as

Another exemption is based upon the value of the property transmitted. It is customary to exempt from inheritance taxation estates or inheritances of a limited value. The exemption is usually more liberal for direct than for collateral inheritances. The favoritism . toward small or moderate estates or inheritances is often carried further by making the tax rate increase with the value or amount of the estate. Statutes are not unconstitutional because of these features.2

Most statutes make a further exemption of gifts to charitable, educational, and religious institutions. There is no constitutional objection to such exemption. A statute imposing a collateral inheritance tax, but exempting bequests for charities, without limiting the amount thereof, does not violate a constitutional provision which prohibits laws exempting from taxation property held for charitable purposes in excess of a specified amount, for an inheritance tax is not a tax on property. And a statute excluding foreign corporations from the exemption of a tax on devises to charities does not abridge the privileges or immunities of the citizens of the United States, nor deny the equality of the laws.*

The supreme court of South Dakota has declined to pronounce an inheritance tax statute unconstitutional because making exemptions other than those allowed by the state constitution, since the constitution has reference to property taxes."

the wife or widow of a son or the husband of a daughter of the decedent: Estate of Campbell, 143 Cal. 627, 77 Pac. 674, affirmed, 200 U. S. 87, 50 L. Ed. 382, 26 Sup. Ct. Rep. 182.

2 See sec. 24, ante.

8 State v. Henderson, 160 Mo. 190, 60 S. W. 1093.

• Estate of Speed, 216 Ill. 23, 108 Am. St. Rep. 189, 74 N. E. 809, affirmed, 203 U. S. 553, 8 Ann. Cas. 157, 51 L. Ed. 314, 27 Sup. Ct. Rep. 171; Humphreys v. State, 70 Ohio St. 67, 101 Am. St. Rep. 888, 1 Ann. Cas. 233, 65 L. R. A. 776, 70 N. E. 957.

Estate of McKennan, 25 S. D. 369, 126 N. W. 611, 130 N. W. 33.

8

§ 131. Interpretation of Exemptions.-Courts have usually been disposed to give inheritance tax statutes a liberal interpretation in favor of the government, by subjecting to taxation every transmission of property that could reasonably be brought within the purview of the law." In California it has been affirmed that a strict construction should be indulged against a rule of exemption which would yield absurd and unjust results; ' in Louisiana it has been held that the exception made by the constitution should be construed strictly, and not extended by inference to property not plainly and clearly within its terms; in Tennessee it is said to be axiomatic and fundamental that exemptions from taxation must positively appear, and that no implication will arise that any species of property or subject of taxation is intended to be excluded if it comes within the purview of the statute; and in New Jersey, that all exemptions from general taxation are to be considered strictly, the resolution in case of doubt being in favor of the rule which subjects all property to a just share of the public burdens.10 But while all this is true, a law imposing inheritance taxes is not extended by construction or intendment to subjects lying beyond its domain.10

6 See sec. 35, ante.

7 Estate of Bull, 153 Cal. 715, 96 Pac. 366.

8 Succession of Kohn, 115 La. 71, 38 South. 898.

English v. Crenshaw, 120 Tenn. 531, 127 Am. St. Rep. 1025, 17 L. R. A., N. S., 753, 110 S. W. 210.

10 Estate of Gopsill, 77 N. J. Eq. 215, 77 Atl. 793. To the same effect is Estate of Hickok, 78 Vt. 259, 6 Ann. Cas. 578, 62 Atl. 724.

10 Estate of Kerr, 159 Pa. 512, 28 Atl. 354; English v. Crenshaw, 120 Tenn. 531, 127 Am. St. Rep. 1025, 17 L. R. A., N. S., 753, 110 S. W. 210. It has been said that the general principle that statutes of exemption from taxation must be strictly construed against the person or corporation claiming it has been generally applied in cases where an exemption is claimed from the general burden of taxation common upon all property or upon the people generally; and that where a tax is not such a common burden, but reaches only a special class of persons, the rule is that to subject such a class of persons to the tax requires