8.—9

34

Moreover, this course would not be in compliance with section 31 of the Act, nor with the decision of the Court of Appeal in Re Holmes, Beetham v. Holmes (32 N.Z. L.R. 577), which laid down that succession duty in respect of a life estate is payable by the life tenant out of the income accruing from the settled estate. The remainderman's succession duty might be paid out of capital, and the life tenant's out of income, but this, too, would, be a hardship on the latter. The capital might be left intact and overdrafts raised on account of life tenant and remainderman, but it might happen in some cases that with a life tenant living for many years the assets might become of less value than the accumulated balance due by the remainderman. In certain cases the duty payable by a life tenant might necessitate the impounding of his income for a number of years before the whole of the duty had been refunded. Of course, testators can always make provision in their wills to overcome these difficulties, but it has been found in very many cases that this has not been done. It might be provided by an amendment of the Act that, in the absence of direction to the contrary, succession, duty should be charged to the capital of the fund in which the beneficiary liable for such succession duty is interested. This would appear to be equitable to all parties. Another point that seems to merit reconsideration is that relating to the payment of death duties on gifts made within three years preceding a testator's death. This duty is payable by the donee, and it seems hard that long after the gift has been made the donee should be called upon to pay it. The person primarily liable for the duty is the donor, and it is scarcely likely that in making the gift he would contemplate its subsequent diminution, should he die within three years, by the payment of additional duty. The more probable intention is that any additional duty should be paid out of his estate. A still further source of inconvenience and hardship is the liability for the immediate payment of death duty on assets consisting of future interests. A beneficiary may be called upon to pay duty on assets from which he will never derive any benefit. Indeed, by the inclusion of such assets in the dutiable estate the duty on those assets from which he will derive a benefit may be materially increased. Such a condition might arise in the case of a testator having in addition to his own estate an interest in the reversion of his father's; and, indeed, it is possible in certain circumstances for a testator's estate to be used up wholly in the payment of duty assessed to the greatest extent on a future interest, leaving nothing for the support of his own beneficiaries beyond such amounts as might be raised on the reversionary interest. This matter has had the attention of the Congress of the United States of America, and an amendment of the existing law is proposed by which the immediate taxation of future interests will be discontinued. It might be possible to amend the New Zealand law in such a way as to charge duty immediately on estates, excluding all future interests and leaving the payment of the duty on such interests until they fall into possession, the value of the assets previously charged being brought into account when the additional duty is assessed. If duty were charged on the full value of such interests at the time they fell into possession the State would derive some compensation on the delayed payment. It would, of course, be necessary for executors and administrators to disclose full particulars of all future interests so that the Inland Revenue Department would be in the position to secure payment of the additional duty in due course. There are difficulties in the way of the suggested alterations in the existing law, but the several points briefly indicated are of such importance as to warrant a thorough examination of the present system. Payments to Clients' Bank Accounts. 76. Dealing as it does with large sums of money belonging to private persons, the Office finds that different methods of accounting to them are favoured by its clients. A great many desire to have their moneys paid to the credit of their bank accounts, and this practice has been followed by the Office in such cases for many years.