SUMMARIES OF California Inheritance Tax Act and Federal Estate Tax Law c/C BLYTH, WITTER, & Co. Publication SUMMARIES OF Inheritance Tax Act of California AND THE Estate Tax Law of the United States COMPILED BY FOGEL & BEMAN, Attorneys Los Angeles, California February, 1921 COPYRIGHT, 1921, BY BLYTH, WITTER & Co. The Reason for this Booklet THE purpose of this booklet is to pass on to our clients information which we ob- tained for ourselves and which we have found useful. No matter how important a law is, it is often difficult for most people to read it with clear understanding, and more difficult to read it with interest. The California Inheritance Tax Act and the Federal Estate Tax Law are of importance and interest to all our clients, and we have therefore engaged attorneys to prepare read- able, understandable summaries thereof. If further information is desired as to any of the matters herein discussed, we assure the reader that we will be glad to obtain it for him. We take this opportunity of thanking Fogel & Beman, Attorneys, who prepared the following pages, and to express appreciation for cour- tesies shown by John W. Carrigan, Assistant Inheritance Tax Attorney, and by C. W. Foote, Estate Tax Deputy, Internal Revenue Office. BLYTH, WITTER Co. CHAPTER ONE Distinction Between the California Inheritance Tax Act and the Federal Estate Tax AT the outset attention is called to the f-\ distinction between the phrase "In- heritance Tax" and the phrase "Estate Tax." The State of California very properly denom- inates its tax an "inheritance tax." The tax is levied upon the separate inheritance of each inheritor, varying both as to the rate of tax and as to the amount of exemption. On the other hand, the Federal tax is as clearly designated an "estate tax." It is as- sessed against the net estate, and the Govern- ment demands payment from the executor or administrator, and does not concern itself in the least in the subsequent distribution of the estate, nor does the matter of relationship in any way enter into consideration. The California Inheritance Tax Act exacts a tax on sums as low as five hundred dollars in some instances, whereas the Federal estate tax makes no attempt to exact payment of a tax from the estate of a resident decedent unless, after allowable deductions are made, the net estate exceeds fifty thousand dollars. It is apparent, therefore, that the state inheritance tax is of importance to a greater number of persons than is the Federal estate tax. The two chapters following will be devoted to a discussion of the state tax, and of the Federal tax, respectively, each being accompanied by appropriate tables, with illustrations. CHAPTER TWO The Inheritance Tax Act of the State of California History THE inheritance tax laws now in force in the State of California may be said to have had their beginning in the year 1893. The law as then enacted was amended from time to time until the year 1905, when the Legislature completely revised the law and passed an act which was fundamentally the same in principle as the act now in force, though it was revised in the years 1911, 1913, and 1917. The acts in force prior to 1917 still have some application to cases where death occurred, or where transfers were made in contemplation of death, before the year 1917, but as such cases are comparatively few in number, and in order to place before the reader a brief statement of the law which has the most widespread application, this discussion will deal almost exclusively with the act of the Legislature of the State of California passed in 1917, and known as the "Inheritance Tax Act." General Provisions As implied by the phrase "Inheritance Tax," the tax imposed is primarily a tax upon the transfer of property at the time of a person's death, but in some cases the tax is imposed upon transfers made before death. A list of the transfers which are taxable is hereinafter set forth; but before proceeding to that the reader's attention is called to the following facts : avor 1. The tax is upon the transfer of property, whether such property consist of real estate, personal property, or both. It is also upon the transfer of any interest in property and upon the transfer of the income from prop- erty. 2. The tax is generally imposed upon such a Transfer to a person i .1 . i_ . .*. or corporation is transfer whether it be to a person, an institu- taxable tion, or a corporation. Some persons, insti- tutions, and corporations are, however, ex- empt, as will appear later. 3. The tax is upon the market value of the JJ*j"J x ue property, or interest transferred. 4. The rates of taxes are prescribed by the Rates of the act. Hereinafter (page 26) appears a schedule showing the various rates. 5. Exemptions as to amount are granted in Exemptions in t. certain cases. For instance, property of the market value of twenty -four thousand dollars, transferred to the widow or to a minor child of the deceased, is exempt from the tax. 6. Calif ornians are greatly interested in know- NO tax upon the -, . i . . . . . , . community Interest ing whether the community -property interest of the wife of the wife is taxable upon the death of the husband, and a portion of the Act is, for that reason, here set forth in italics: " . . . the one-half of the community prop- erty which goes to the surviving wife on the death of the husband, .... shall not be deemed to pass to her as heir to her husband, but shall, for the purpose of this act, be deemed to go, pass, or be transferred to her for valuable and adequate consideration, and her said one- half of the community shall not be subject to the provisions of this act . . . " A further discussion of the act with reference to community property appears at page 15 of this pamphlet. Taxable Transfers Transfers are taxable as to the amount of the market value of the property, in excess of the exemptions granted, when the transfers are effected in any of the following cases : When !5T ^ 8 e e - 1 When a person dies while a resident of this i i resident state, leaving property which is situated in this state or elsewhere, and which is trans- ferred by will or by provisions of the laws of this state to any person, institution or cor- poration, no matter where the recipient of the property resides or is located. when the deceased 2. When a person dies while not a resident of i 'i* resident this state, leaving property within this state which is transferred by will or by provisions of the laws of this state to any person, institu- tion or corporation, no matter where such recipient person, institution or corporation resides or is located. dln a t n in fe contem r ^fal 3. When a person, during his life time, and intendLfto'take while a resident of this state, transfers property effect after death w hj cn Jg { n thlS State OT elsewhere, by deed, grant, bargain, sale, assignment or gift, with- out valuable and adequate consideration, if such transfer is made in contemplation of death of the person making such transfer, or is intended to take effect in possession, or enjoyment, at or after such death. : 4. When a person during his life time, and while not a resident of this state, transfers death p r0 p er ty which is within this state by deed, grant, bargain, sale, assignment or gift, with- out valuable and adequate consideration, if such transfer is made in contemplation of death of the person making the transfer, or is intended to take effect at or after such death. "Adequate consideration," as used in the act, means a "consideration equal in money or in money's worth to the full value of the property transferred." Subdivision Four, Section Two, of the act reads as follows : "The words 'contemplation of death/ as used in this act, shall be taken to include that expectancy of death which actuates the mind of a person on the execution of his will, and in nowise shall said words be lim- ited and restricted to that expectancy of death which actuates the mind of a person making a gift causa mortis* and it is hereby declared to be the intent and purpose of this act to tax any and all transfers which are made in lieu of or to avoid the passing of property transferred by testate or intestate laws." Whether a transfer will be held to be made in contemplation of death depends upon the facts present in each individual case. The length of time between the date of the transfer and the date of death may be long or short, and though it may be considered as one of the facts in the case, still it is not alone deter- minative of the question as to whether or not a certain transfer was made in contemplation of death. A tottering old man is told by his physician that he has but a few days to live. He goes home and makes a deed of all his property to his daughter. He gives the deed and the property to her. Despite his own expectations and those of his physician, he does not die in a few days, but continues to live five or six years longer, when, finally, he succumbs. In such a case the transfer would undoubtedly be held to have been made in contemplation of death, though five years or *A gift causa mortis is one which is made in contemplation, fear or peril of death and with intent that it shall take effect only in case of the death of the giver. more elapsed before death. On the other hand, a vigorous man of fifty years, having every prospect of living many years, decides to give his son a share in his business so that the son will take an active interest in his work. The papers for the transfer are signed and delivered by the father to the son, and the father thereupon leaves the office for the golf links, but before he reaches the street he is injured and dies as the result of an elevator accident. The transfer in that case would doubtless be held not to have been made in contemplation of death, even though death followed within a brief moment of the time of transfer. **. Whenever property, real or personal, is held j n joint tenancy or is deposited in banks or other institutions or depositaries in the joint names of two or more persons, and payable to either or the survivor upon the death of one of them, the right of the survivor, or survivors, to immediate possession is deemed a transfer under the act, and is taxable as though the deceased owned all of the property at the time of death, excepting therefrom such portion of the joint property as originally belonged to the survivor, or survivors. For example: Smith had seven hundred dollars of his own money; Jones had three hundred dollars of his own money, and it was agreed between them that they should purchase, as joint tenants, a bond worth one thousand dollars. The bond was so purchased, and continued to be held by them in equal shares, the interests of both uniting to form one ownership, and each in the event of the prior death of the other having right to immediate possession and ownership of the whole bond. Smith dies and Jones is entitled to immediate possession and ownership. Nevertheless, 10 under the terms of the act, his right of pos- session is deemed a transfer. He proves that three hundred dollars was contributed by him and that no part of the three hundred dollars was ever the property of Smith. If the market value of the bond at the date of Smith's death is one thousand dollars, a tax must be paid on the transfer as to 1 the seven hundred dollars which Jones did not originally contribute. (For simplicity, it has been as- sumed that no exemption from the tax exists in Jones' favor.) 6. There are three additional forms, or kinds, Additional transfers i ' i i i i named in the act or transfers named in the act, and which are subject to the tax provisions; but as they are unusual and more or less technical, space will not here be devoted to their discussion. They are: transfers by power of appointment; trans- fers to executors in excess of reasonable com- pensation; and transfers made subject to charge determined by death. 7. The state does not exact a tax on money Life insurance not . > subject to tax by paid by a lite insurance company on a policy tateiaw insuring the life of the deceased. Transfers Aggregated When more than one taxable transfer is made to one person the tax is imposed upon the aggregate market value of all of the property so transferred. Exemptions The amount of exemption existing with re- spect to each person is clearly shown in the schedule on page 26 hereof, but for the reader who prefers narrative form, the following statement of exemptions is given. Certain exemptions are allowed in each case, and are based upon the market value of the property transferred. 11 widow. emtjB The widow takes her one-half of the com- munity property free of the tax, and in addi- tion, twenty-four thousand dollars of the sum which she receives from her husband is ex- empt from taxation. exem% n on S.'OM Twenty-four thousand dollars transferred to a minor child of the deceased is exempt. Eiei band on chiid"en Ten thousand dollars is exempt when trans- ferred to the husband, a father or mother, a grandfather or grandmother, an adult son or adult daughter or a grandchild. An adopted child, or a child who stood in mutually ac- knowledged relation of child of the deceased person, may come within this class under conditions set forth in the act. Two thousand dollars is exempt when trans- ferred to a brother, sister or descendant of a brother or sister, a daughter-in-law, or the husband of a living daughter. One thousand dollars is exempt when trans- ferred to an uncle or an aunt or to a descendant of either an uncle or an aunt. Five hundred dollars is exempt when trans- ferred to any relative not included in any of the foregoing exemptions, or when transferred to a person not related by blood or adoption to the deceased, or to a corporation. p rO p er ty transferred to charitable institutions, or to other institutions exempted from taxa- tion, is, under conditions named in the act, exempt from inheritance tax. Rates of Taxation A m {^ be expected, the rates of taxation established by the act are more favorable to the close relative than to the more distant relative or stranger. The rates are sliding that is, they increase with the increasing 12 Dl * Rate. rary. amount transferred. For a clear understand- ing of the rates, it again becomes necessary to make reference to the schedule appearing at page 26. Administrative and Enforcement Provisions A large portion of the act deals with the man- ner of arriving at the value of property trans- ferred and with the manner of enforcing the collection of the tax. No attempt will here be made to go into the details of these admin- istrative and enforcement measures, except to state briefly some of the provisions which are believed to be of interest to the reader, and which are as follows : The tax becomes due and payable at the ofTh e e f tax payment death of the deceased person, and if paid within eighteen months no interest will be charged; if paid within six months a rebate of five per cent is allowed. A penalty is provided for a failure to pay the Penalty for mm- . i . . i IP i 1 e P a y men t o* t e tax tax within eighteen months alter the date ot death. In some cases, particularly where transfers have been made before death and in contemplation of death, and where such trans- fers were not disclosed for a long time after death, the penalty has been made very severe. Taxes are based upon the value of the property value of property transferred as of the date of the death of the deceased person. The taxes are declared to be a lien upon the L r n e " the property passed or transferred until paid. Provision is made for the return of overpay- ments made under certain conditions set forth in the act. Administrators, executors or trustees are re- Administrators , . . ' . i f quired to deduct the amount or the tax from any money or property subject to the tax, and 13 executors of deceased a method is provided for the sale by the execu- tors, administrators or trustees of so much of the property of the deceased person as will enable them to pay the tax, the sale to be made under existing provisions of law. The State Controller is authorized, when he records, etc. De li eves that a tax is due under the provisions of the act, to inspect such books and records as he shall have reason to believe relate to or evidence the taxability of the transfer. A corporation existing under the laws of this state fe pro hibited from transferring on its books, or issuing a new certificate for, any shares of capital stock belonging to or standing in the name of a deceased person, or standing in the joint names of the deceased person and one or more other persons, without the written consent of the proper state official. Safe deposit companies, trust companies, banks and other institutions and persons hav- ing in their possession, or under their partial control or custody, securities, deposits or assets belonging to or standing in the name of a deceased person, or in the joint names of such deceased person and one or more other persons, are prohibited from delivering or transferring the same to executors, adminis- trators, agents, attorneys, etc., unless the proper state officials are first notified. Inher !S?i The act authorizes the State Controller to appoint one or more persons in each county in the state to act as Inheritance Tax Ap- praisers in their respective counties. Powers are vested in the properly appointed Inheritance Tax Appraiser to require the attendance before him of the executors or administrators of estates, or of any other per- sons whom he believes to possess knowledge 14 of M8et c 8 e o" f i of the estate or knowledge of any property transferred by the decedent within the mean- ing of the act, and proper authorities are authorized to bring an action in court to have the amount of the tax determined and to enforce its collection, and such action may be Iv a enhou b g e h e So orc instituted even though no probate proceedings e pe*ndkig cee are pending. Community Property The system known as the "Community -Prop- community- j -i /^ 1' ' A property erty system prevails in California, Arizona, system Louisiana, New Mexico, Nevada, Texas, and Washington. In order that the reader may understand the application of the state inherit- ance tax act to community property it is deemed advisable to discuss that subject some- what in detail. The following statements are made on the assumption that the husband and wife con- tinue to live together after marriage. A husband and wife may hold property as joint tenants, tenants in common, or as com- munity property. If they hold property as joint tenants or as tenants in common, they hold the same just as any two individuals might, and irrespective of their marriage rela- tion; but community property is dependent upon the existence of the marriage relation- ship. Community property is defined by our law as c g d unityproperty "property acquired by husband and wife, or either, during marriage, when not acquired as the separate property of either." Property of the wife, owned by her before separate property r * , ., I'll ff of the wife, marriage, and that which she acquires alter defined marriage by gift, bequest, devise or descent, with the rents, issues and profits thereof, is her separate property, and over the wife's separate property the husband has no control. 15 TXTnd All property owned by the husband before defined marr j a g e> an( j that acquired afterwards by gift, bequest, devise or descent, with the rents, issues and profits thereof, is his separate property. Generally speaking, the wife has no control over the separate property of her husband, excepting that provisions of law make the hus- band liable for the support and maintenance of his wife. illustration p or illustration, let us assume that Jane Roe has earned money and purchased a piece of land before her marriage, and that John Doe had one thousand dollars in the bank prior to the date on which he married Jane Roe. After the marriage John works and earns five hundred dollars per month. Jane gives music lessons and earns twenty dollars per month. John's father gives him a house and lot. Jane's brother dies, and by his will Jane is left two thousand dollars in bonds. Under the law, as above defined, the lot which Jane owned before her marriage, and any moneys which are later received from the rental or sale (including the profits) of the lot, continue to be Jane's separate property. The one thousand dollars which John owned before his marriage, with the interest it earns, continues to be John's separate property, whether he buys bonds with it or whether he leaves it in the form of cash. John's salary and the money earned by Jane in giving music lessons after their marriage constitute community property, and if invested, any earnings re- sulting from such community property like- wise continue to be community property. The house and lot given to John by his father, and any rents collected on account of it, continue to be John's separate property. The two thousand dollars in bonds left to Jane by 16 lifornia her brother, and all of the interest collected on the said bonds, are Jane's separate prop- erty. It is contended by the Inheritance Tax Attor- where man and ., j 7 , i c i i move to Califor ney that, it a husband and wile Jive in another |c t q e uir > Id perty l8 state and move to California, the mere mov- ing to this state does not make the past earn- ings of the husband community property, but if they were considered as separate prop- erty in the state from which they came, such earnings continue to be his separate property after arrival in this state. But this contention is doubtful in view of another statute. The question is now before the Supreme Court of California for determination. Under the law as it now stands the wife is wife takes one-half 11 i f i i i i community entitled, upon the death or the husband, to property one-half of the community property. The following rules are set forth to indicate Rules for disposition . . .-.-I i IP of community what disposition will be made or community property property upon the death of either the wife or the husband : 1. Upon the death of the wife, the entire com- Husband takes aii . . . , i . . . i upon death of wife mumty property, without administration, be- longs to the surviving husband and, generally speaking, the wife has no power to dispose of her interest in the community property by the making of a will or otherwise. 2. Upon the death of the husband, one-half of the community property goes to his sur- deat!l viving wife and the other one-half is subject to the disposition of the husband by will. If the husband leaves no will, one-half of the community property passes to his wife by law and the remaining one-half goes to his children, or to the offspring of such children. If the deceased husband has made no disposition of the one-half of the community property which 17 is subject to his disposition by will, and if he One it 1 ftoc8 y to w hi leaves no children, or offspring of such children, if ^any tnen the said one-half of the community prop- erty is subject to distribution in the same manner as though it were the separate prop- erty of the deceased husband. However, in any event, at least one-half of all of the com- munity property is distributed to the sur- viving wife upon the death of the husband, although it must be understood that all of such community property is subject to the debts of the husband and to the expenses of administration. Inheritance Taxes in Other States It is not the purpose of this pamphlet to dis- cuss in detail the inheritance tax provisions prevailing in states other than California, nor to make any defense of the provisions of the law of this state; but it may not be amiss to inform the reader that Arizona, Florida and South Carolina are the only three of the United States which have failed to pass in- heritance tax acts. Neither Alaska nor the District of Columbia has an inheritance tax act. An examination of the rates of tax applied in the various states will show that in nearly all instances the tax rates themselves are lower than the rates applied by the California law, but this does not mean that the State of California realizes or collects more in inherit- ance taxes than do other states. On the con- trary, the taxes collected in this state are low as compared with the collections in most other states. This is because of the liberal exemp- tions granted by the laws of California. To illustrate: A widow, under the laws of New York State, has an exemption of only five thousand dollars, whereas in this state a widow 18 may take twenty -four thousand dollars exempt Though rates are J ,. i IT,- higher In California. from taxation, and in addition may receive tax is less what is known as her one-half of the com- munity property free from the tax. In other words, though the rates be higher in the state of California than in most of the other states, the actual tax payment upon an estate in California will be considerably less than the tax paid on estates of equal size in most other jurisdictions. Suggestion In many instances the estates of residents of California, who have died here leaving per- Cali( sonal property located in other states, have been compelled to pay an inheritance tax on such personal property, both in California and in the other states where the personal property was located. It has been contended that this constitutes so-called "double taxation;" but a contrary ruling has been made, and it therefore seems advisable, in most instances, for resi- dents of California, insofar as practicable, to keep all of their personal property, such as stocks, bonds, moneys, etc., in this state. 19 CHAPTER THREE The Federal Estate Tax Tax on estates of fT^HE Federal Estate Tax is one imposed persons owning ' i s-*t p i TT i ri property in u. s. by the Government 01 the United states at time of death * _ . . . upon the estate ot every person dying after September 8, 1916, who, at the time of his death, resided in the United States, the Territories of Alaska or Hawaii, or the Dis- trict of Columbia, or who owned any property situated in any of those places. C n ! o z t e S 8 fac p tOT The statute takes no account of citizenship, but prescribes different rules for residents and non-residents. For instance, an exemption of $5.ooo E u? n p esta 1 tM fifty thousand dollars is granted to the estate of resident decedent o f a p erson wno was a resident of the United States at the time of his death, but no such exemption exists in favor of the estate of one who at the time of death was a non-resident. Estates of persons dying in the military service are exempt under certain conditions. Jt ls believed that this booklet will be most of resident decedents generally read by persons who wish to inform themselves as to the effect of the law on estates of residents that is, persons who lived in the United States before death, with- out any present intention of moving away. Therefore, no attempt will here be made to discuss in detail the application of the act to estates of non-residents, but effort will be directed to giving a brief statement of the general principles prevailing in the usual and ordinary cases of persons dying while residing in the United States. ^fte'r allowable The tax is imposed, at rates fixed by law, upon 8 the transfer of the "net estate" of the de- ceased person. The "net estate" is deter- 20 mined by subtracting authorized deductions from the entire estate, called in the act the "gross estate." It is of first importance, therefore, to deter- cross estate includes , . i_ 1 j j . a11 Property mine what is to be included in arriving at the amount of the gross estate. Generally speaking, the gross estate is determined by taking the total value, at the time of the de- ceased person's death, of all property trans- ferred, including the following: 1. Real property situated in the United States, or any interest in such property of whatever nature, including present or future interests in such property; 2. Personal property, of whatever nature, Personal property r f. * / ' TT . ., , or interest therein whether situated in the United btates or else- where, including a present or future interest in such property; 3. The interest of the surviving wife or hus- community property ,,.,.,., f 1 not exempt under band, existing by virtue or a statute, such, tor Federal Law .... *j.l_ ' (See foot note page 22) instance, as the community interest 01 the wire created by California statute; 4. Property transferred by the deceased before death and in contemplation of death ; Transfers before 5. Property, transfer of which is made during the lifetime of the deceased and which is in- tended to take effect in possession or enjoy- ment at or after death; 6. Property held jointly by the deceased and Joint property any other person, to the extent of the de- ceased's interest therein; 7. Any life insurance payable to the estate, and not to an individual; 8. Life insurance payable to individuals other ' i surance K ? ver , "^ * . . i $40,000 is taxable than executors or administrators, to the extent that it exceeds forty thousand dollars; 21 9. Property passing under what is known in law as a "power of appointment" is also in- cluded, but as such a transfer is not considered as ordinary, space will not be devoted to a further discussion of it. The community interest to which a wife suc- cee( j s U p On the death of her husband is taxable under rulings which have been made by the Treasury Department in construing the pro- visions of the Federal Estate Tax Law. Some experts are of the opinion that such a ruling is inconsistent with other regulations of the Department. Nevertheless, at the present time it is required that all of the community property be included in the husband's gross estate.* Whether or not a transfer made during the lifetime of the deceased was made in contem- plation of death depends upon the facts in any given case, and is to be determined in very much the same manner as that used in con- struing the California statute which deals with the same subject. (See page 9 hereof.) Property held jointly by the deceased and one or more other persons is taxed to the extent of the interest contributed by the deceased, just as is the case under the California law. (See page 10 hereof.) Life insurance, it will be noted, under certain nsurance con( jitions is taxable by the Federal Govern- ment, though not taxable under the California law. Some eminent authorities have ques- tioned the constitutionality of the provision of Federal law taxing life insurance, but to the present time no successful attack has been made against it. On January 3rd, 1921, Judge Rudkin of the United States District Court at San Francisco, filed an opinion in the case of Blum vs. Wardell. holding that the com- munity interest of the wife in her husband's estate is not taxable even under the Federal law. Whether this ruling will be approved by the Treasury Department or by the higher courts remains to be seen. 22 It is immaterial whether the property is trans- ferred by the laws of inheritance or by the will of the deceased person; the tax is imposed on the transfer of the entire net estate, not, as under the California law, upon any particular distributive share thereof. The value of the separate interests, and the relationship of the beneficiary to the deceased person, have no bearing upon the question of liability or the amount of the tax. After the value of the gross estate is deter- Grow estate less . MIII i deduction equals mined in the manner prescribed by law and net estate according to official regulations, the next step is to determine the value of the "net estate" by deducting certain amounts specified by law. Since materially different rules as to deduc- Discussion to a PP i y ., 'iiii where death occurred tions and as to rates or tax prevail where death after February 24, occurred prior to February 25, 1919, it will be assumed, for convenience, that our dis- cussion deals only with those cases where the deceased died on or after that date. In the case of the estates of residents, the act permits the following deductions to be made from the entire gross estate, wherever the same may be situated: 1. Funeral expenses; au Vli deductlon " 2. Administration expenses that is, probate court fees, administrators' or executors' fees, etc.; 3. Claims against the estate, such as claims for money owed from the deceased to another; 4. Unpaid mortgages; 5. Losses from casualty or theft; 6. Support of persons actually dependent upon the deceased, and if ordered by a court having jurisdiction over the estate; 23 7. Property derived from the estate of a prior decedent who shall have died after October 3, 1917, and from which prior decedent's estate an estate tax has been collected under the Revenue Act of 1917 or that of 1918; 8. Gifts, by will of the deceased to incorpo- rated religious, charitable and similar institu- tions ; 9. Specific exemption fixed by the act at $50,000. The law itself, and the regulations of the Treasury Department, generally make it neces- sary, in order to obtain the deductions, to bring the desired reduction within one of the items specifically described. Administrative and Enforcement Provisions Reports required \vithin a period of sixty days after death, executors or administrators are required to file with the Collector of Internal Revenue a notice, upon a form supplied by the Govern- ment, and within one year, unless time is extended by the proper authority, a final report or return must be made upon a regula- tion form. The return, so-called, must supply accurate information as to the character and value of the property owned by the deceased, or in which he had an interest, at the time of his death, together with details of transfers made before death, where such transfers might be taxable under the law. Rigid rules are enforced and severe penalties may be exacted for failure to comply with the foregoing and other requirements of the law. Proper Government officials are authorized to conduct examinations and to make such in- vestigations as may be deemed necessary to determine the truth or sufficiency of any 24 returns, and they are further empowered to compel the payment of the tax even where there has been a failure to make the return. Executors, and in some instances other per- Executors and sons, are made individually liable for the pay- ulw^fofpaySent ment of taxes, and in most instances the tax is a lien upon the gross estate of the deceased for a period of ten years, unless paid within that time. Payment of the Tax The tax is due and payable one year from the Tax due one year date of death, and if not paid within 180 days after it becomes due, interest at six per cent is added, running from the date such payment became due, or one year after the date of the death. In exceptional cases the time for pay- ment is sometimes extended upon proper appli- cation for further extension to the Commis- sioner of Internal Revenue at Washington, B.C. If, after payment and upon investigation, it is increased payment found that an additional tax is due, the same must be paid promptly, or interest at the rate of ten per cent will be charged. Rates of the Tax A sliding scale of rates is established by law. At page 28 appears a table of the rates. The method of computing the Federal Estate Tax is illustrated on page 29. a Qj\ ^ i^^X ^ 65 ^ o 0) - v 2 o o 1 ~ LO * . *o O g a ^ -" T-H H (N CO CO H w 1-1 ee M p to < cr W - CjX 65 ^ ^ S 65 5 CO cS a 3 ;< (M T I T-H > S w h O V H a o H 4) I s ! (M ^ < X (N ^ T-H s& s& 1 ^4 w o H CS-JT * c* a '-* U !* -c'> <-> 50 a "5 "S* 3 '3 ** ** 0^ 08 3 rt *" tj g *o 2 *o o -*- "" 2 S o3 2; Sal * a 'S 03 a o o PH O "5 Sb *s V3 08 "o "8 H &!s a 3 "S o o. "s J3 D t^^ ^^ T3 eS O S a O3 03 S * -o' o o S a o w 'S tt M CD "o i 15 "S. 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"o tl 2 u S - ^ -5^ J8 J "S O II ^50 | ^ ^B 1 ^ 4) 08 *J X .S 5 ^^^2 '3 ? a o ** x"S -2 a" 0] 4) ^ * 03 p g bo Q **^ ^J tt-o o (f a "C 2-B 2Sa tio o3 '5 s^J ^ b u a 4) "3 q 5" C2 ^^ c ^^ ^K a hrt ** M s > ^-a 03 w ^ oijfc i j J P ! H S K -"4 S ^ > H 27 Table of Rates on Estates of Residents (Dying after Feb. 24, 1919) Under Federal Estate Tax Law Amount (after deducting of Net Estate the $50,000 exemption) Rate $ 50,000 1% Next 100,000 2% Next 100,000 3% Next 200,000 4% Next 300,000 6% Next 250,000 8% Next 500,000 10% Next 500,000 12% Next 1,000,000 14% Next 1,000,000 16% Next 1,000,000 18% Next 3,000,000 20% Next 2,000,000 22% Above 10,000,000 25% It is understood, of course, that the above rates are cumulative, so that a net estate of $250,000 would pay 1% of $50,000 plus 2% of $100,000 plus 3% of $100,000, or a total tax of $5,500. Method of Computing the Federal Estate Tax The method of computing the tax may be illustrated thus : John Jones, a resident of the United States, died after February 24, 1919, leaving a gross estate the total value of which was $1,517,800. The tax in this case would be calculated in the manner following: Total gross estate $1,517,800 Specific exemption allowed bylaw $50,000 Other deductions, funeral expenses, court costs, etc. 800 Total deductions . . 50,800 Total net estate, the value on which tax is figured ........... $1,467,000 $ 50,000 SfSay 87 : 000 1% or $ 500 The next 100,000 ? s ^ $ At 67 : 000 2% or 2,000 The next 100,000 SfSsJ 1 ^: 000 3% or 3,000 The next 200,000 ? s ^ e $ At 67 : 000 4% or 8,000 The next 300,000 f^At 67 : 000 6% or 18,000 The next 250,000 SftaJ 1 ^: 000 8% or 20,000 Remaining 467,000 SfSft! 87 :? 00 10 % or 46,700 Total Net estate $1,467,000 Total Tax $98,200 29 BLYTH. WITTER. &. Co, D. 8. GOVERNMENT. MUNICIPAL AND CORPORATION BONDS 521 Trust and Savings Building Cor. 6th and Spring Sts. Los ANGELES Merchants Exchange 61 Broadway Alaska Building SAN FRANCISCO NEW YORK SEATTLE First National Bank Bldg. Chamber of Commerce Bldg. SAN DIEGO PASADENA Yeon Building Easton Building PORTLAND OAKLAND 6404 Hollywood Blvd. HOLLYWOOD YOUN6 M'CALLISTER. INC.. L. A