§ 15, giving an executor or administrator of a life tenant on whose death a lease granted by him had determined, the right to recover a ratable portion of the rent from the last day of payment to the death of the lessor, has been said to be part of the law of Oregon. 88 The technical rule that rent is not apportionable has been modified in many states by statute.89 The Oregon case points a way to a just result where the legislature has not acted.

INHERITANCE TAXES

I

The decision in In re Parker 90 is entirely sound, and represents an important point of transfer tax law in a typical American family settlement. A New York testator left a large estate to trustees in trust for a niece, Mrs. P., for life, and after her death to divide the principal into as many shares as there were children of the niece then living and children then deceased leaving issue then surviving, the latter to take per stirpes. The residue was left to Mr. P., a nephew. By a possible though remote contingency, for the niece had several young children living at the testator's death, the nephew would receive the remainder to the class. In that event the tax would be higher than if the issue of Mr. and Mrs. P. took, for the residuary legatee was entitled at once under the will to an estate, exclusive of the remainder, of about $450,000, and the New York tax increases with the size of the legacy. The contingent remainder was held taxable as if it passed to the residuary legatee under the New York act,91 which taxes forthwith a contingent interest at the highest rate that would be possible on the happening of any of the contingencies or conditions which the transfer may involve subject to a refund when the estate takes effect in possession. No other conclusion could have been reached by the court; yet the result is the tying up of property for the sake of a contingency little likely to occur. And it suggests to conveyancers the desirability in the future of drawing settlements as far as possible in the form of vested interests.

II

Two recent Illinois cases have decided that in estimating "the clear market value of ... property received by each person upon which the state inheritance tax is to be estimated, the federal estate tax is to be considered an expense of administration and to be deducted.92 Under the federal statute the tax is an estate tax, and not a charge against the particular beneficiary. This is sufficient to warrant the Illinois result and to account for the general unwillingness of the federal officers to deduct the state tax in estimating the amount due to the United States; for most state taxes are not based on the estate itself, but on the amount received by each distributee, and are a charge on him. Yet a federal judge has recently decided that if the state tax is, like the federal, on the estate and not paid by the beneficiary, it should be deducted in estimating the federal tax, under the provision allowing a deduction for "administration expenses. . ." and such other charges against the estate as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered. 93 If the same state under its decisions allows a deduction of the federal tax, puzzling questions will arise as to the method of estimating the amounts due to each jurisdiction. The subject should be cleared up by Congress and the state legislatures. The point is sufficiently important for their consideration, for it arises in connection with every estate of any magnitude.

III

The Illinois case of People v. Northern Trust Co.94 contains a point by which conveyancers must not be misled. The testator during his life made trust deeds in favor of four of his children by which the trustee was to pay income to these children in equal shares, and after the death of each child his share was to pass as he

People v. Pasfield, 284 Ill. 450, 120 N. E. 286 (1918); People v. Northern Trust Co., 124 N. E. (Ill.) 662 (1919); and see Appeal of Tyler, 104 Atl. (N. J.) 298 (1918); In re Knight's Estate, 261 Pa. 537, 104 Atl. 765 (1918); Hooper v. Shaw, 176 Mass. 190, 57 N. E. 361 (1900). In Estate of Gihon, 169 N. Y. 443, 62 N. E. 561 (1902), the court declined to deduct the United States tax, because under the law then in force the tribute was levied on the succession and not on the estate.

94

Northern Trust Co. v. Lederer, 257 Fed. 812 (1919); 39 STAT. AT L. 777, § 203.
N. E. (Ill.) 662 (1919).

124

appointed with usual provisions in default of appointment, and other clauses common in American settlements. The agreements finally reserved to the settlor the power of revoking the deeds and trusts by notice in writing to the trustee. The court held that this reservation did not make the transfer taxable as "intended to take effect in possession or enjoyment at or after" death. One must not jump to the conclusion that such reservations are in all cases of no effect from the point of view of the transfer tax. In the principal case there was evidence that this provision was introduced not at the suggestion of the testator, but by the attorney by way of abundant caution to provide against the possible unworthiness of a beneficiary, and that the testator always declined to be consulted about the property. The court based its decision on the ground that the object of the power of revocation was not to evade the tax but merely to protect the grantees. No further effect, therefore, should be attributed to the decision.

IV

In State v. Probate Court 95 the testatrix left one third of a small estate to her husband and two thirds to her niece. To avoid a contest the will was probated by the consent of the legatees, the only parties interested, and a compromise agreement filed by which the husband and niece each took one half. Whether the husband took under the will or under the compromise was immaterial so far as taxing his interest was concerned. In either event his $10,000 exemption protected him. The court held, however, that the niece should pay taxes on one half only and not on the two thirds given her by the will. The decision has some support in Pennsylvania and Colorado.96 But the contrary doctrine of Illinois, Massachusetts, and New York,97 which taxes the estate according to the terms of the will and not according to the provision of the agreement, is preferable. It is true that a legatee may renounce, and if he does, the legacy is not taxable to him but to the residuary legatee; and if he may renounce in full, it is said he may by a com

95 172 N. W. (Minn.) 902 (1919).

96 Pepper's Estate, 159 Pa. 508, 28 Atl. 353 (1894); People v. Rice, 40 Colo. 508, 91 Pac. 33 (1907); Matter of Cook, 187 N. Y. 253, 79 N. E. 991 (1907).

97 Estate of Graves, 242 Ill. 212, 89 N. E. 978 (1909); Baxter v. Treas. and Rec'r Gen'l, 209 Mass. 459, 95 N. E. 854 (1911).

promise renounce in part, escape the burden, and let the person who actually receives the property pay the tax. But in renunciation, as in the case of lapsed 98 or void legacies, the law of wills or the intestate law-not the agreement of parties carries the property to the person taxable. The doctrine of the Minnesota case lays the foundation for collusive agreements to deprive the government of its just due.

V

Both New York and Massachusetts have recently decided that the Federal Inheritance Tax is an estate tax, not a legacy or succession tax, and is not payable out of the interests of legatees, but from the residuary estate.99

HARVARD LAW SCHOOL.

Joseph Warren.

98 Compare In re Hedenberg's Estate, 89 N. J. Eq. 173, 104 Atl. 221 (1918). 9 In re Hamlin, 124 N. E. (N. Y.) 4 (1919); Plunkett v. Old Colony Trust Co., 124 N. E. (Mass.) 265 (1919). .

HARVARD LAW REVIEW

Published monthly, during the Academic Year, by Harvard Law Students

PROTECTION OF PUBLIC SERVICE ENTERPRISES FROM COMPETITION. One of the most significant features of the modern law of public utilities has been the adoption of a new policy regarding the protection of the public service enterprise from competition.

Twentieth-century conditions, under which the great mass of the people are dependent upon the public utilities for their very existence, have demonstrated the impracticability of the old policy of free competition in the public service field, and have proved that its characteristic duplication of investment, organization, and operating expense is an economic waste, not only productive of high rates and inadequate service to the public, but frequently resulting in total abandonment of that service. Necessity has overthrown prejudice until it has come to be recognized that there is as direct a public interest in insuring a safe, adequate, and efficient service by providing for the stability of the public utility enterprise as there is in protecting the public utility patron from exploitation. This modern conception has found expression in the widespread enactment of Public Utilities Acts inaugurating a new policy of comprehensive public regulation in the public utility field.

The former policy of free competition in action has been admirably illustrated by the recent case of United Railroads of San Francisco v.

1 See Attorney-General v. Walworth Light & Power Co., 157 Mass. 86, 87, 31 N. E. 482 (1892); Weld v. Board of Gas & Electric Light Commissioners, 197 Mass. 556, 558, 84 N. E. 101 (1908).

2 Idaho Power & Light Co. v. Blomquist, 26 Idaho, 222, 241, 141 Pac. 1083 (1914).