TRAYNOR, C. J. I dissent. The Legislature has provided in plain terms that every transfer by will is subject to the inheritance tax.1 A testator’s transfer by bequest or devise in performance of an agreement is no less a “transfer by will” than a bequest or devise for any other purpose. Nothing in the present statute or its prede[157]cessors suggests that a transfer by will pursuant to an enforceable contract is excepted from the normal operation of the tax. In all the years since the Legislature first selected succession as a subject of tax (Stats. 1853, ch. 127, art. V [Comp. Laws of Cal., Garfielde, 1853, p. 678]) it has never so much as intimated in any provision for computation of the tax, deductions or exemptions, or in any other provision that it meant to exclude from “transfer by will” a transfer by will pursuant to a contract.
The 1893 inheritance tax statute (Stats. 1893, ch. 168, p. 193) and subsequent statutes have also imposed an inheritance tax on certain inter vivos transfers.2 The purpose of this tax is to reach inter vivos transfers so like testamentary dispositions that they might be used in lieu thereof to avoid the inheritance tax. (Estate of Potter (1922) 188 Cal. 55, 63 [204 P. 826]; Estate of Thurston (1950) 36 Cal.2d 207, 210-211 [223 P.2d 12].) The tax on such inter vivos transfers “does not turn upon the intention of the grantor, but upon the character of the interests created by the transfer.” (Estate of Hyde (1949) 92 Cal.App.2d 6, 14 [606 P.2d 420].)
The literal terms of the earlier California statutes would have imposed a succession tax on any inter vivos transfer made in contemplation of death, or intended to take effect in possession or enjoyment at or after the transferor’s death, even though the transferee had bought and paid full value for his interest. The California courts, however, like those of most other jurisdictions (see 7 A.L.R. 1053; 157 A.L.R. 984), held that the statute was not designed to tax such transfers made for valuable and adequate consideration. The theory of these decisions is that “The result of such sales, at full value, would in no wise defeat the statutory purpose; the estate would not be depleted, but merely changed in form.” (In re Kraft’s Estate (1928) 103 N.J.Eq. 543 [143 A. 764, 766]; In re Orvis’ Estate (1918) 223 N.Y. 1 [119 N.E. 88, 89, 3 A.L.R. 1636].) The addition of the words “made without valuable and adequate consideration” to the description of taxable inter vivos transfers in the 1911 California inheritance tax statute (Stats. [158191]1, ch. 395, p. 713) “served but to clarify and not to change the pre-existing law.” (Estate of Reynolds (1915) 169 Cal. 600, 601 [147 P. 268]; Abstract & Title Guar. Co. v. State (1916) 173 Cal. 691, 694 [161 P. 264].)
“The use of the word ‘valuable’ in the act of 1911, excludes considerations of love and affection. ’' (Estate of Brix (1919) 181 Cal. 667, 674 [186 P. 135].) The Brix case also held that “adequate consideration” was the same as that required for specific performance of a contract. (Civ. Code, § 3391, subd. 1.) Since such adequacy was peculiarly a question of fact dependent on the circumstances of the particular ease (O’Hara v. Wattson (1916) 172 Cal. 525 [157 P. 608]), the Brix holding gave considerable scope for inheritance tax avoidance. Although this court had originally indicated that under the 1911 act consideration, to be “ adequate, ’ ’ had to be reasonably and objectively measurable in money,3 the Brix case in effect left the measurement of adequacy to the parties so long as they “looked at the transaction from a pecuniary and not a sentimental standpoint.” (181 Cal. at p. 678.)4 To [159]emphasize that consideration for inheritance tax purposes should be objectively measured, the Legislature in 1917 defined “valuable and adequate consideration” as “a consideration equal in money or in money’s worth to the full value of the property transferred.” (Stats. 1917, eh. 589, §2, subd. 3, p. 882.) This definition was carried into the subsequent inheritance tax statutes and was codified in 1943 (Rev. & Tax. Code, §13641).
Although the Legislature has thus been concerned over the years with consideration in connection with inter vivos transfers, it has never spoken of consideration in connection with transfers by will. The reason is obvious. When the Legislature provided that every transfer by will is taxable, that is exactly what it meant. (Estate of Grogan (1923) 63 Cal.App. 536, 543 [219 P. 87].) Its distinction between testamentary and inter vivos transfers is not unreasonable or unfair. (See Stebbins v. Riley (1925) 268 U.S. 137, 141-143 [45 S.Ct. 424, 69 L.Ed. 884, 44 A.L.R. 1454].) The Legislature could reasonably find that ordinarily the making of a will is not the subject of bargains entered into for solely pecuniary consideration, and in the exercise of its power to classify for tax purposes it could quite properly decide, as it did, to tax “every” “transfer by will.”
The Legislature’s language is certainly apt for that purpose in the light of the rules of statutory construction set forth by this court with regard to the 1905, 1911, and 1913 inheritance tax acts: “ ‘It is thought to be only reasonable to intend that the legislature in making provisions for such proceedings [imposition and collection of taxes] would take unusual care to make use of terms which would plainly express its meaning, in order that ministerial officers might not be left in doubt in the exercise of unusual powers, and that the citizen might know exactly what were his duties and liabilities. A strict construction in such cases seems reasonable, because presumptively the legislature has given in plain terms all the power it intended to be exercised. ’ (1 Cooley on Taxation, 453.) This rule is, of course, to be applied only where some ambiguity exists or doubt arises from the language used as to the meaning intended. ‘Beyond the words employed, if the meaning is plain [160]and intelligible, neither officer or court is to go in search of the legislative intent. ’ (Ibid., 450.) ” (Estate of Potter (1922) supra, 188 Cal. 55, 64-65.)
It is, of course, still the rule that “it is the function of the courts to construe and apply the [inheritance tax] law as it is enacted and not to add thereto nor detract therefrom.” (Kirkwood v. Bank of America (1954) 43 Cal.2d 333, 341 [273 P.2d 532]; In re Miller (1947) 31 Cal.2d 191, 199 [187 P.2d 722].) We cannot properly add to the article of the inheritance tax statute concerning transfers by will the provision as to valuable and adequate consideration that the Legislature advisedly placed only in the article concerning inter vivos transfers.
Nor can we make such an addition to the statute on the ground invoked in Estate of Belknap (1944) 66 Cal.App.2d 644 [152 P.2d 657], that the will is “merely the conduit” by which the testator performs his inter vivos obligation when a transfer by will is made in accordance with an enforceable contract supported by adequate consideration.5 The conclusion, that the transfer by the “mere conduit” of the will is not taxable, is based on the mistaken assumption that for
[161]inheritance tax purposes a contractual obligation to make a will is no different from an ordinary contract obligation undertaken by decedent during his lifetime and enforceable against his estate because by chance he died before performing it. When decedent promised to create a testamentary trust, he “did not contract to convey; he contracted to make a will”6 (In re Howell’s Estate (1931) 255 N.Y. 211 [174 N.E. 457, 459]; Carter v. Craig (1914) 77 N.H. 200 [90 A. 598, Ann.Cas. 1914D 1179, 52 L.R.A. N.S. 211]), and the contractual right acquired by the obligee was to a transfer subject to the laws governing testamentary transfers (Clarke v. Treasurer (1917) 226 Mass. 301 [115 N.E. 416, 417]). Therefore, as held in the eases last cited, a transfer by will pursuant to contract is subject to the inheritance tax.7
[162]One who bargains and pays for a promise to make a will presumably knows that the promised transfer will be subject to the tax, particularly since our inheritance tax statutes have always unequivocally made a transfer by will taxable.8 Taxability of the transfer the legatee and testator have bargained for is a part of the bargain. If the legatee wishes a distributive share undiminished by inheritance tax, he can bargain for a will so providing. (See Estate of Irwin (1925) 196 Cal. 366, 375 [237 P. 1074].) The same, of course, is true when the contract to make a will is for the benefit of one who is not a party to the contract, as in the case of Madeline here.
Adherence to the statute does not put a premium on the violation of such agreements. A decedent’s failure to perform his contract to make a specified testamentary disposition does not relieve from the operation of the inheritance tax statute a transfer by intestate succession or by a will that does not conform to his contract. Whether or not the decedent performs his contract, transfers of his property are subject to the inheritance tax. Illustrative of this situation is In re Kidd’s Estate (1907) supra, 188 N.Y. 274 [80 N.E. 924], There decedent, by antenuptial contract with his wife, promised to bequeath all his property to the wife’s daughter (his stepdaughter). He died leaving a will that bequeathed his property to others. The stepdaughter obtained a decree directing the executors and beneficiaries named in the will to execute releases and conveyances of the property to her. The court of appeals rejected the stepdaughter’s contention that there was no taxable transfer. It pointed out that had decedent performed his contract, the transfer by will would have been taxed, and that in enforcing the contract equity “converts the devisees under the will, or the heirs at law or next of kin, as the case may require, into trustees for the beneficiary under the original agreement. ’' Therefore, the court concluded, ‘ ‘ the devolution of the property has in fact taken place under the [163]will, and such devolution is subject to the transfer tax.” (See also People v. Field’s Estate (1910) 248 Ill. 147 [93 N.E. 721, 723, 33 L.R.A. N.S. 230] : “Illustration is not necessary to show that any other rule would enable parties desiring to do so to in a measure defeat the object and purpose of the statute. ’ ’)
When the beneficiary of the contract to make a will that decedent has breached obtains specific performance, those to whom the property passes by the law of testate or intestate succession hold as trustees for the beneficiary. (Ludwicki v. Guerin (1961) supra, 57 Cal.2d 127, 130.) The beneficial transfer that in fact takes place is taxed (see Estate of Rath (1937) supra, 10 Cal.2d 399), and the beneficiary of the contract pays the tax rather than those to whom the property devolved by operation of the will or intestacy.
It is contended that it would be anomalous to impose a tax whenever a testator provides in his will that a creditor shall receive a stated sum in payment of a debt owed by the testator, although there would be no tax when the testator failed to specify that the debt be paid, thus requiring the creditor to file a claim against the estate. There is no such anomaly. No statute provides that a testator can force his creditor to take a stated sum as a taxable legacy and thus deprive the creditor of his right to be paid as a creditor. When a testator gives a legacy to a creditor in payment of a debt, the choice to collect as creditor or to take as legatee remains with the creditor. He can renounce the legacy and collect his claim as a debt. (See Sheppard v. Desmond (Tex.Civ.App. 1943) 169 S.W.2d 788, 790.) When the creditor renounces, he is not chargeable with any tax on the amount he receives in payment of his claim.
Assume a will that provides, “I bequeath to C the sum of $10,000 in payment of my debt to him. ’ ’ Assume further that the amount of the debt is $10,000, that C renounces the legacy and files a creditor’s claim, and that the claim is allowed.9 The tax would be computed as follows:
[164]Value of the property subject to the inheritance tax statute transferred to the particular transferee.....$10,000
Allowable deduction provided in
section 13981 et seq.......10,000
Clear market value......— 0 —
Tax..........None
If the value of a legacy left in express payment of the testator’s debt to the legatee is greater than the amount of the debt, the legatee may prefer to take the legacy. In such case, however, he cannot also have the amount of the debt deducted from the value of the legacy in computation of the tax. (Rev. & Tax. Code, § 13981.) The testator gives the legatee-creditor his choice and the legatee-creditor takes his choice with presumed knowledge of the inheritance tax. There is nothing unfair in the imposition of the same inheritance tax on a legacy accepted in payment of an ordinary debt as that imposed on another legacy of equal value to one who is not a creditor. Different taxes may be imposed on transfers of the same value if the circumstances differ. (Stebbins v. Riley (1925) supra, 268 U.S. 137, affirming Estate of Watkinson (1923) 191 Cal. 591, 599 [217 P. 1073]; Estate of Elston (1939) 32 Cal.App.2d 652, 660 [90 P.2d 608].)
It has been suggested that it would be unfair to tax a transfer by will pursuant to an inter vivos contract in situations similar to that in the Belknap ease, supra, 66 Cal.App. 2d 644. For a concededly valuable and adequate consideration within the meaning of the inheritance tax statute Belknap contracted in a property settlement agreement to provide by will that his executor purchase a $20,000 annuity for his wife.
[165]His will referred to the property settlement agreement and ^directed the executor to purchase the annuity. If the parties intended that the wife, having paid full value for a $20,000 annuity, should receive an annuity undiminished by the inheritance tax, the solution to the problem lay not in a judicial rewriting of the inheritance tax statute, but in construing the will in light of the contract as bequeathing $20,000 net for purchase of the annuity. A legacy of a specified amount free of inheritance tax is construed as a legacy of a sum sufficient to net the amount specified after payment of the inheritance tax thereon, namely, of the amount specified and “an additional amount sufficient to pay the tax and the tax upon the tax ad infinitum.” (Estate of Irwin (1925) supra, 196 Cal. 366, 375.) Such a construction of the Belknap legacy would effect the intent expressed by the will (which was also the intent of the parties to the inter vivos arrangement) without the distortion of the statute resorted to in the Belknap opinion.
Adoption of the theory of the Belknap ease not only distorts a clearly expressed and proper legislative purpose but leads to confusion and uncertainty in the administration of the statute. I would therefore disapprove Estate of Belknap, supra, 66 Cal.App.2d 644, and adhere to Estate of Grogan, supra, 63 Cal.App. 536, which faithfully followed the statute.
Respondent’s petition for a rehearing was denied September 28, 1966. Traynor, C. J., was of the opinion that the petition should be granted.
Bevenue & Taxation Code, section 13401: “ An inheritance tax is hereby imposed upon every transfer subject to this part.''
Bevenue & Taxation Code, section 13601: “A transfer by will or the laws of succession of this State from a person who dies seized or possessed of the property transferred while a resident of this State is a transfer subject to this part.” (Italics added.)
In taxing inter vivos transfers the present statute declares the Legislature’s "purpose ... to tax every transfer made in lieu of or to avoid the passing of property by will or the laws of succession. ’ ’ (Rev. & Tax. Code, § 13648.) The statute also taxes the vesting of the survivor’s right in joint tenancy (Rev. & Tax. Code, § 13671) or homestead (Rev. & Tax. Code, § 13622), the granting of a family allowance in probate (Rev. & Tax. Code, § 13623) and the transfer of the proceeds of life insurance (Rev. & Tax Code, § 13722).
In Estate of Reynolds (1915) supra, 169 Cal. 600, the decedent had transferred a going business to his adult son for a consideration measurable in money, but in circumstances indicating that the transfer was in lieu of a testamentary disposition. The value of the consideration was much less than the value of the business. In upholding taxability, this court said (169 Cal. at p. 604) that such consideration “certainly was not adequate from any commercial point of view.” The Reynolds case was followed in Estate of Felton (1917) 176 Cal. 663, 668 [169 P. 392] (inter vivos transfer by father to adult son of stock in closely held family corporation).
Estate of Brix (181 Cal. at p. 674) declared that the statement as to consideration “from a commercial point of view” in the Reynolds case ‘ ‘ was not intended as a complete definition of adequacy of the consideration, but merely to indicate that the particular transaction there considered, being a sale of a going business, must be regarded from the same point of view as any commercial transaction. ’ ’
The transaction considered in Brix was not commercial. Decedent and Ms wife executed a property settlement agreement and three contemporaneous deeds of realty. The controller sought to uphold the imposition of the inheritance tax on only one part of the transaction, a deed from decedent and Ms wife to their three children, reserving a life estate to decedent.
Brix arose under the 1911 inheritance tax statute. The court refused to apply, as declarative of previously existing law, the 1917 amendment defining “valuable and adequate consideration” as “equal in money or in money’s worth to the full value of the property transferred.” It said (181 Cal. at p. 674 et seq.), “We think the rule applicable in specific performance eases, so far as the mercenary side of it is concerned, should control. Considering the transactions in that light, this transfer . . . was made for an adequate consideration ‘in money’s worth.’ . . . [Decedent] obtained a release of his wife’s claims, not only to the property [formerly community] he retained, but to all other property which he might thereafter acquire, and became free from her interference in any dealings he might wish thereafter to make in property. . . . Who can say how much it [159]was worth to him in money, to have his marital troubles settled in this way? He had a just expectancy of many years of life. It is apparent that the parties looked at the transaction from a pecuniary and not a sentimental standpoint. They evidently regarded the consideration as adequate and they were in a much better position to place a value thereon than is this court. ’ ’
The court in Belknap (66 Cal.App.2d at p. 654) misconstrued an opinion of this court (Estate of Rath (1937) 10 Cal.2d 399, 407 [75 P.2d 509, 115 A.L.R. 836]) and a superseded opinion of a District Court of Appeal (Estate of Madison, 26 Cal.2d 453 [148 P.2d 668]) to reach the conclusion that this court had “modified” Estate of Grogan (1923) supra, 63 Cal.App. 536, to free from the inheritance tax the very kind of transaction that Grogan held taxable. The Belknap court derived its characterization of the will as a “mere conduit’ ’ from Estate of Bath, supra. The Bath case involved facts distinctly different from those involved here and from those in Grogan and Belknap. Bath held that in fixing the inheritance tax the probate court could and should look behind what appeared to be an absolute devise of the fee in real property from decedent Rath to the nephews of his previously deceased wife and tax the transfer for what it actually was; i.e., a gift from the previously deceased wife to her nephews of an interest in property that decedent Rath held as trustee during his life. In other words, the court refused to apply the parol evidence rule to preclude taxation of the beneficial transfer that in fact took place. The effect of the decision in Bath was to reduce the amount of tax payable by the nephews, because they in fact took from their aunt rather than from decedent, a stranger in blood. Conversely, however, an inter vivos transfer that appears absolute on its face can be shown by parol evidence to have been made on terms that subject it to the inheritance tax. (See Kelly v. Woolsey (1918) 177 Cal. 325, 329, 334 [170 P. 837]; Estate of Madison (1945) 26 Cal.2d 453, 456 [159 P.2d 630].)
The Rath case states (10 Cal.2d at p. 407), “Decisions such as In re [Estate of] Grogan, 63 Cal.App. 536 [291 P. 87], In re Gould’s Estate, 156 N.Y. 423 [51 N.E. 287], and In re Kidd’s Estate, 188 N.Y. 274 [80 N.E. 924], do not consider the problem determined herein. Said decisions are to the effect that a transfer made by will is taxable although in pursuance of a contract, in payment of a debt, or for services rendered. Said decisions had reference to a situation where the testator is disposing of [161]Ms own property, not of property held 7>y him in trust for others, as to which, his will is a mere conduit of title.” (Italics added.)
The court in Belknap (66 Cal.App.2d at p. 654) seized on the last quoted phrase (applied by the Bath court, of course, to the will of Mr. Bath, not the wills of Grogan and Gould) and incorrectly said that the opinion of the District Court of Appeal in Estate of Madison, 26 Cal.2d 453 [148 P.2d 668] (superseded by the opinion of this court in 26 Cal.2d 453) "cites with approval the Estate of Bath as authority for the construction of the statute holding that the Inheritance Tax Act imposes a tax on the theory of ‘succession,’ and not merely because the will is ‘used as a means of conveyance’ thus Belknap came to the erroneous conclusion "that the Grogan case has been modified to that extent. ’ ’
The essential difference in the rights of the beneficiary under a contract to create an inter vivos trust and a contract to create a testamentary trust is obvious. When John’s promise in the present ease was made to maintain in effect a will providing for distribution into a trust for Madeline’s benefit of an amount of money or property that would adequately pay for her support during the remainder of her life, it gave the donee beneficiary no more than the possibility that at some future time she might have some kind of cause of action against someone (see Brown v. Superior Court (1949) 34 Cal.2d 559, 563 [212 P.2d 878] ; Brewer v. Simpson (1960) 53 Cal.2d 567, 593 [349 P.2d 289] ; Ludwicki v. Guerin (1961) 57 Cal.2d 127, 130 et seq. [17 Cal.Rptr. 873, 367 P.2d 415]; Day v. Greene (1963) 59 Cal.2d 404, 411 [29 Cal.Rptr. 785, 380 P.2d 385, 94 A.L.R. 802]) if she did not predecease John (see O’Brien v. O’Brien (1925) 197 Cal 577, 589 [241 P. 861]).
The New York court in Howell’s Estate, supra, stated that any confusion in previous New York decisions was cleared by N. Y. Laws of 1925, chapter 143. That statute (similar to our inheritance tax statute) provided that if an inter vivos transfer, otherwise liable to tax, ‘ ‘ is made for a valuable consideration, the portion of the transfer for which the grantor or vendor receives equivalent monetary value is not taxable,” but clearly did not so provide as to transfers by will or intestacy. Howell holds that under the 1925 New York statute both transfers by will and receipt of property by specific enforcement of a contract to transfer by will are "subject to the rule formulated in eases like Gould’s and Kidd’s.” (In re Gould’s Estate (1898) 156 N.Y. 423 [51 N.E. 287, 288], imposing a tax on a testamentary transfer in agreed payment for services-rendered by the testator’s son; In re Kidd’s Estate (1907) 188 [162]N.Y. 274 [80 N.E. 924], imposing the inheritance tax on the transfer of decedent’s property to plaintiff stepdaughter, decreed in her suit for specific performance of decedent’s antenuptial agreement with plaintiff’s mother.)
Although there has been a conflict since 1944 between Belknap and the earlier Grogan decision, the State Controller’s regulations continue to follow the inheritance tax law as written: “A transfer by will is subject to the Inheritance Tax Law even though made pursuant to an agreement * between the transferee and the decedent for an adequate and full consideration in money or money’s worth which was received by the decedent. In such ease, the transferee takes from the decedent under the will and not by virtue of the agreement.” (Cal.Admin.Code (1959), tit. 18, §1 13601-13603 (a).)
The following provisions of the inheritance tax statute (Eev. & Tax. Code, div. 2, pt. 8) would govern computation of the tax:
“If a transferee under a will renounces Ms rights under the will . . . the tax is nevertheless computed in accordance with the terms of the will admitted to probate. ” (§13409.)
“The tax is computed upon the clear market value of the property transferred. . . (§ 13402.) “ ‘ Clear market value ’ means the market value of any property included in any transfer, less any deductions allowable by this part.’ ’ (§ 13312.)
The article of the statute relating to deductions “is a limitation on [164]deductions allowable. It is not intended by this article to allow as a deduction anything that does not actually reduce the amount of an inheritance or transfer.” (§ 13981.)
“In determining the market value of property included in any transfer subject to this part, the deductions specified in this article, and no others, are allowed against the appraised value of the property, if the deductions: (a) Are obligations of the decedent or his estate, except as otherwise indicated in this article; and (b) Are paid by the estate or the transferee.” (§ 13982.) “Debts of a decedent owed by hint at the date of his death are deductible from the appraised value of property included in any transfer subject to this part made by the decedent.” (§ 13983.)
The word “paid” as used in section 13982 does not mean that the money must have been “physically paid” but may refer to “the amount, finally fixed and which is enforceable.” (Estate of Slack (1948) 86 Cal. App.2d 49, 53 [194 P.2d 61]; see Estate of Skinker (1956) 47 Cal.2d 290, 294 [303 P.2d 745, 62 A.L.R.2d 1137].)