Probate, Wills and Estate Administration- Statutes and information NJ

Wednesday, October 2, 2019

Sayreville Wills, Estate Planning & Probate Seminar

Wills, Estate Planning & Probate Seminar
Sayreville Senior Center November 26, 2019 at 11am [note new time] 423 Main Street Sayreville NJ 08872 open to the public Open to the public. You do not need to be a resident. SPEAKER: Kenneth Vercammen, Esq. Edison, (Author- ABA’s “Wills and Estate Administration book”) Main Topics: 1. NJ Estate Tax eliminated in 2018 2. The 2019 changes in Federal Estate and Gift Tax 3. Power of Attorneys recommendations 4. Living Will & Advance Directive 5. Administering the Estate/ Probate/Surrogate 6. Avoiding unnecessary expenses and saving your family money COMPLIMENTARY MATERIAL: Brochures on Wills, "Answers to Questions about Probate" and Administration of an Estate, Power of Attorney, Living Wills, Real Estate Sales for Seniors, and Trusts. For information Call Sayreville Senior Center 732-390-7059 Jen Krushinski jkrushinski@sayreville.com You don’t have to be a Sayreville resident to attend. For materials if you can’t attend, email vercammenlaw@njlaws.com https://www.facebook.com/events/1095113354031388/

Thursday, September 26, 2019

Creditor claim against estate dismissed IN THE MATTER OF THE ESTATE OF VALMORE J. FORGETT, JR.,

IN THE MATTER OF THE
ESTATE OF VALMORE J.
FORGETT, JR.,
Deceased.
_________________________

Argued April 2, 2019 – Decided September 3, 2019

Before Judges Yannotti, Rothstadt and Natali.

On appeal from the Superior Court of New Jersey,
Chancery Division, Passaic County, Docket No. P-
183801.
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0443-17T4

PER CURIAM
In this dispute over the distribution of the decedent Valmore J. Forgett

Jr.'s assets, Lisa Farina, a general judgment creditor of the estate, appeals from

the Chancery Division's August 17, 2017 order approving the final accounting

filed by the decedent's executors and awarding attorney's fees and executors'

commissions. She also appeals from earlier orders entered by the trial court in

2015, dismissing all but two of the exceptions she filed to a prior accounting,

and in 2016 dismissing her complaint to remove the Estate's co-executors.

Farina's exceptions and arguments related to the trial court's 2004 approval of a

stock purchase agreement (SPA) between the Estate and one of the co-executors,

the decedent's son, and her contention that her claim had priority over all

creditors.

On appeal, Farina argues that the trial court erred by failing to recognize

her claim's priority over all of the Estate's other creditors, including the Internal

Revenue Service (IRS); by rejecting her claim that the SPA should be set aside

because it was the result of a breach of a fiduciary duty and fraud; and, by

concluding that she was "bound by the court approval of the [SPA]." Finally,

Farina challenges the trial court's award of executors' commissions and attorneys

fees because they were incurred in furtherance of the alleged breach of a

fiduciary duty. We find no merit to these contentions and affirm, substantially

A-0443-17T4
2
for the reasons expressed by the judges who addressed Farina's claims in their

written and oral decisions that accompanied the orders under appeal.

The nature of Farina's challenges require that we recite in detail the long

and tortuous history of her pursuit of payment from the Estate as derived from

the record. The decedent died in 2002 and his will named his son, Valmore J.

Forgett III (Val III), and a friend, Raymond Bentley, as co-executors of his

estate.

During his lifetime, the decedent owned and operated Service Group, Ltd.

(Service Group) which had several subsidiaries, including Navy Arms Company

(Navy Arms). At one point, Gibbs Rifle Company, Inc. (Gibbs), which was

owned in part by Val III, was a selling agent for Navy Arms. The decedent also

owned a commercial building in Union City, an investment account with PNC

Bank (PNC), and a loan receivable from Gibbs. At the time of his death, the

decedent's liabilities included loans owed to PNC that were secured by liquid

assets and by a mortgage on the Union City property, and personal income taxes

for 2002.

In early 2003, Citrin Cooperman & Company, LLP (Citrin) prepared

financial statements for Service Group for the six-month period ending in

A-0443-17T4
3
December 2002. The report stated that the company incurred net losses of about

$712,000 and that its liabilities exceeded the total assets by $1,771,000.

Prior to the decedent's demise, in 2000, Farina was an employee of Navy

Arms. She filed a workers' compensation claim against her employer after

falling in an uninsured parking lot owned by the decedent individually. She

filed her complaint against decedent on October 4, 2002 and amended it to

include the Estate following his death. On May 27, 2005, she obtained a

judgment of $230,850 against the Estate.

In addition to Farina, the decedent's second wife, Eleanor Seifert, also

initially maintained a claim against the Estate. Prior to their marriage, in 1997

Seifert and the decedent signed a prenuptial agreement, which contained a

provision that provided Seifert would receive "$50,000 per year" as continued

spousal support upon the decedent's passing. In May 2003, Seifert filed a

complaint against Val III and the Estate, alleging that Val III was in breach of

his fiduciary duty and was engaged in self-dealing, causing the Estate "to be

without funds with which to meet its obligations . . . ." In November 2003, the

Estate, Seifert, and Val III entered into a settlement agreement in which Val III

individually agreed to settle Seifert's claim against him and the Estate for

$400,000. In response to a motion filed by Seifert, on January 23, 2004, Judge

A-0443-17T4
4
Burrell I. Humphreys approved the settlement after he found that there was no

opposition to the settlement and it was reasonable.

Prior to Judge Humphreys' approval of the settlement agreement, Val III

pursued the SPA allegedly in order to satisfy a claim against the Estate made by

PNC. At the time, Service Group's and Navy Arms' obligations to PNC that the

decedent had personally guaranteed were in default and the Estate attempted to

find a buyer for Navy Arms. PNC had commenced two actions, one seeking to

foreclose its mortgage on the Union City property and the other seeking to take

inventory and assets from Navy Arms in which it had a security interest. When

the Estate could not find a buyer for Navy Arms, Val III offered to purchase the

stock for nominal value and assume the debt owed to PNC. The SPA provided

that Val III would pay the Estate $100 for the Service Group shares as well as

pay PNC "the sum of all principal, accrued interest and expenses thereon in full

satisfaction . . . ."

On January 2, 2004, Bentley filed a complaint seeking "advice and

direction from the court approving" the Estate's sale of its shares in Service

Group to Val III. The complaint disclosed the allegations made by Seifert in her

complaint and that the settlement of those claims was pending at the time. It

also referred to the poor financial circumstances of the Estate. A copy of the

A-0443-17T4
5
SPA was attached to the complaint, which was served on Farina, whose claim

was also pending at that time. Farina did not challenge the proposed SPA. Judge

Humphreys approved the SPA on March 8, 2004, after he noted that no

opposition papers were filed by any party. The judge signed an order stating

"this order close[d] the case in the Chancery Division."

In addition to having Val III through the SPA assume the then-

approximately $100,000 debt owed to PNC, the Estate sought approval for the

sale of the Union City property, which was encumbered by a mortgage held by

PNC. Farina received notice of the proposed sale and the application for

approval. She did not file any opposition to the application.

Judge Margaret Mary McVeigh entered an order approving the sale on

June 22, 2004. The property was sold for $611,000 on August 12, 2004. The

net proceeds totaled $561,494.29, with $130,798.03 being paid to PNC to

discharge the mortgage even though Val III assumed that debt. The Estate

applied the amount it paid to PNC from the sale to reduce the amount payable

to Val III as the assignee of Seifert's claims that the Estate valued to be in excess

of $1,000,000. After the payment to PNC, the Estate netted approximately

$400,000 from the sale.

A-0443-17T4
6
As to amount owed to the IRS, the Estate retained Citrin in October 2003

to prepare and file the decedent's 2002 tax returns. Those returns indicated that

$33,050 was owed to the State on taxable income of $757,090, and $127,383 to

the IRS on taxable income of $762,939. At the time of filing, Citrin found that

the Estate did not have sufficient assets to pay the outstanding amount owed for

taxes.

In 2005, the Estate hired Wiss & Company, LLP (Wiss) to provide a

second opinion about whether the losses and negative financial condition of

Service Group would impact the income taxes owed to the State and IRS. Wiss

concluded that the financial condition of Service Group as of December 2002

rendered a $2,434,463 loan owed to decedent by the company worthless. On

December 15, 2002, Wiss prepared an amended state income tax return, showing

no taxable income due to the loss of the written-off loan. It calculated that the

Estate was entitled to a state income tax refund of $13,050. Ultimately, the State

issued a refund of $8,229.83.

Wiss filed an amended federal income tax return that also showed no

taxable income because of the uncollectable loan. It claimed that the Estate was

entitled to a refund of $28,827. The IRS disagreed and claimed the Estate owed

$127,383, as previously calculated, not including penalties or interest.

A-0443-17T4
7
Neither PNC, the IRS, nor Farina took any action between 2005 and 2010

towards collecting any of the amounts owed to them by the Estate.

Against this backdrop, in 2011, Farina began to pursue the collection of

the judgment she obtained against the Estate in 2005. After receiving documents

in response to an information subpoena issued to the Estate, in December 2012,

Farina filed a complaint seeking damages and equitable relief against Val III,

Bentley, and the Estate's attorneys for their alleged roles in diverting assets from

the Estate.

Among the relief she sought in her complaint, Farina demanded that the

2004 approval of the SPA be set aside as it was a fraudulent conveyance under

N.J.S.A. 25:2-25 and that her judgment had priority over other the claims of

other creditors. However, after Judge McVeigh entered an order to show cause

on December 27, 2012, Farina voluntarily dismissed the complaint.

Despite the dismissal, the judge directed the Estate to file a verified

complaint for judgment of insolvency and instructions. At the time, the Estate

owed money to the IRS, Farina, and Val III, the latter of whom had already

withdrawn from participating as a co-executor in matters that were central to the

Estate's administration.

A-0443-17T4
8
The Estate filed its complaint on April 30, 2013 seeking approval of its

accounting, instructions as to certain issues, and an award of administrative,

accounting and counsel fees. Farina responded with her exceptions to the

accounting by again alleging that Val III breached his fiduciary duty and that he

and the Estate conspired to commit fraud in order to divert funds. Farina also

alleged that her claim against the Estate had priority because she filed the

complaint upon which her judgment against the Estate was based before the

decedent's death.

In its response to Farina's contentions, the Estate maintained that Farina

and her counsel had an open offer to examine its files and asserted that Farina

was notified when the Estate applied to the court for approval of the SPA but

she never responded or otherwise objected to the application. Farina asserted

that she did not object to the application for approval because she was told that

the SPA would not affect the Estate's ability to pay her and she relied on such

statements. She also claimed she did not receive all the information requested

from the Estate regarding its ability to pay.

On May 12, 2014, Farina filed a motion for partial summary judgment

seeking an adjudication that her claim was superior to the claims of other

creditors and an order directing Val III to pay his obligation to the Estate. In a

A-0443-17T4
9
supporting certification, Farina's counsel asserted that his client was first

informed that there may not be enough funds to pay her claim in 2011.

After considering the parties' oral arguments in July 2014, on January 29,

2015, Judge McVeigh granted the Estate's motion to dismiss Farina's exceptions

and on April 30, 2015, dismissed the exceptions with prejudice, except for two

of them.1 In her accompanying written decision, the judge found that under Rule

4:50, there was no legal basis established and no facts provided to substantiate

allegations that in 2004 Judge Humphreys abused his discretion or was misled

when he approved the SPA. She found that he properly considered all issues

before him during his consideration of Val III's settlement with Seifert and the

SPA. Judge McVeigh specifically noted that there were no expert reports

supporting any allegation made by Farina regarding the financial condition of

the Estate or her claim of fraud. Judge McVeigh denied a subsequent motion

for reconsideration and reserved decision on the Estate's request for an interim

award of counsel fees in the amount of $210,088.

1
The two exceptions related to the Estate's decision to charge Val III's claim
with the amount it paid to PNC rather than require him to pay the amount
himself, and whether an administrative claim for reimbursement he made was
valid.
A-0443-17T4
10
On August 14, 2015, Judge McVeigh awarded the Estate's attorneys

$39,483.75. The judge issued a written decision in which she found that Val III

still owed the Estate the $155,798 it paid to PNC, and that his administrative

claim was not valid. The judge also required a proposed distribution plan for

the Estate's remaining assets be filed. She later denied Val III's motion for

reconsideration of that order.

On February 9, 2016, the Estate filed an amended verified final

accounting. In support of its application, it detailed claims for payment being

made by its counsel, the co-executors, the IRS, Farina and Val III. It explained

that under N.J.S.A. 3B:22-2, Farina was not a judgment creditor because her

judgment was obtained after decedent's death, rendering her a general claimant.

Farina initially responded by filing a complaint seeking the appointment of a

new executor to replace Val III and Bentley.

After considering the parties' oral arguments on March 23, 2016, Judge

McVeigh denied Farina's application. In an oral decision placed on the record,

the judge concluded that Farina was a general judgment creditor and did not

have "extraordinary interest in what happened to this estate . . . ." She found

that removing Bentley as the "only functioning executor . . . would be gross

incompetence . . . ."

A-0443-17T4
11
After Farina filed her exceptions to the Estate's amended final accounting,

the parties once again appeared for oral argument on April 22, 2016. After

considering the parties' contentions, the judge again found that Farina was a

judgment creditor of the Estate, not entitled to priority over the IRS. The judge

stated that the "IRS stands before everybody," even though, as Farina argued,

under 26 U.S.C. § 6323, the IRS did not file a notice of federal tax lien . Judge

McVeigh ordered the Estate to file another amendment to its accounting, which

it did on August 5, 2016. In the accounting, the Estate indicated that it owed

$2,027,745.38 in liabilities, including the amount owed to Val III, but only had

$273,927.14 in assets, providing a breakdown of its proposed distribution.

Farina again filed exceptions.

The parties appeared before Judge Bruno Mongiardo2 for oral argument

on the final accounting on August 10, 2017, before he issued his August 17,

2017 order approving the final accounting for the reasons stated in his written

decision issued on the same date. The judge concluded that the Estate's legal

fees had first priority under N.J.S.A. 3B:22-2(b). He noted that the exceptions

that Judge McVeigh did not dismiss were unrelated to legal fees and stated "[a]n

2
Judge Mongiardo was assigned to the matter after Judge McVeigh retired in
2016.
A-0443-17T4
12
attorney's entitlement to be paid for services rendered is not merely a contractual

right but also a professional right." He found that that there was no legitimate

issue or dispute about the attorney's "time spent, hourly rates, or the

reasonableness or necessity of the charges for legal services" and that since

2013, most of the time expended was focused on addressing Farina's exceptions.

As to the executors' commissions, the judge cited to N.J.S.A. 3B:18-24 and -25

and observed that no prior court found that Val III engaged in behavior that

would justify depriving of the commission he was owed.

Judge Mongiardo also concluded that the IRS was entitled to the balance

of the Estate's cash after all expenses were paid, including legal fees and

executor commission fees, assuming there were assets left. He too found that

Farina was not a judgment lien creditor entitled to any priority because her claim

was against the Estate, not the decedent. He noted that Judge McVeigh already

ruled on the matter of priority and reiterated that the IRS had a superior claim

to Farina's.

The order entered by Judge Mongiardo on the same declared the Estate to

be insolvent and directed that the $273,927.14 in cash that the Estate had be

distributed pursuant to N.J.S.A. 3B:22-2. Specifically, the order approved a

previously made payment of $15,478.87 to the Passaic County Surrogate,

A-0443-17T4
13
directed that Bentley be paid $5,412.16 for co-executor commissions, the

Estate's attorneys be paid $208,531.84 in legal fees and expenses, and that a

payment of $44,504.27 be made to the IRS for partial payment of the outstanding

taxes. The order also provided that the amount owed by Val III to the Estate be

reduced by $20,412.16, in order to satisfy Val III's co-executor fees. The order

also stated that the IRS's claim had priority of all other claimants, but noted there

were not enough assets to pay the entire claim. This appeal followed.

"The scope of appellate review of a trial court's fact-finding function is

limited" because "findings by the trial court are binding on appeal when

supported by adequate, substantial, credible evidence." Cesare v. Cesare,

154 N.J. 394

, 411-12 (1998). We decline to disturb "factual findings and legal

conclusions of the trial judge unless . . . convinced that they are so manifestly

unsupported by or inconsistent with the competent, relevant and reasonably

credible evidence as to offend the interests of justice." Rova Farms Resort, Inc.

v. Inv'rs Ins. Co.,

65 N.J. 474

, 484 (1974) (quoting Fagliarone v. Twp. of N.

Bergen,

78 N.J. Super. 154

, 155 (App. Div. 1963)).             On the other hand,

challenges to legal conclusions are subject to our de novo review. Estate of

Hanges v. Metro Prop. & Cas. Ins. Co.,

202 N.J. 369

, 382-83 (2010).




                                                                             A-0443-17T4
                                        14
       At the outset, we address what we consider to be the lynchpin to all of

Farina's contentions on appeal. Specifically, Farina argues that her judgment

was superior to all other creditors and that despite having received notice of the

Estate's application for approval of the SPA in 2004, she was entitled to raise a

challenge to it beginning in 2011.     We find no merit to these contentions

substantially for the reasons expressed by Judge McVeigh and Judge Mongiardo

in their thorough written and oral decisions.      We add only the following

comments.

      The appropriateness of the SPA under the circumstances that existed at

the time were considered by Judge Humphreys after notice to Farina. Bentley

properly filed a complaint for instructions because of Val III's involvement. "An

executor has the right to apply to the courts for direction and guidance in the

performance of the duties of his office or trust when he is in doubt as to the

extent of his powers and duties or as to the proper manner in which to proceed."

Fid. Union Tr. Co. v. Heller,

16 N.J. Super. 285

, 292 (Ch. Div. 1951); see also

7 N.J. Practice, Wills and Administration § 1116 (Alfred C. Clapp & Dorothy

G. Black) (rev. 3d ed. 2019). Once Judge Humphreys decided that the SPA was




                                                                          A-0443-17T4
                                       15
 bona fide, Farina was barred by N.J.S.A. 3B:14-363 from raising a challenge to

the judge's approval, absent circumstances warranting the vacating of Judge

Humphreys' judgment under Rule 4:50-1. When Farina attempted to raise a

challenge to that approval, Judge McVeigh found that there was no evidence of

any reason to vacate the 2004 approval. Her conclusion was supported by the

evidence in the record.

       In any event, and regardless of the bona fides of the SPA, Farina's repeated

contention that her judgment had priority over all creditors, including the IRS,

is without merit because it is legally incorrect. N.J.S.A. 3B:22-2 sets forth the

order of claimants to which an estate's personal representative shall make

payments where "assets of the estate are insufficient to pay all claims . . . ."


3
    N.J.S.A. 3B:14-36 states:

              Any sale or encumbrance to the fiduciary, his spouse,
              agent or attorney, or any corporation or trust in which
              he has a substantial beneficial interest, or any
              transaction which is affected by a substantial conflict
              of interest on the part of the fiduciary, is voidable by
              any person interested in the estate except one who has
              consented after fair disclosure, unless:

              a. The will or a contract entered into by the decedent
              expressly authorized the transaction; or

              b. The transaction is approved by the court after notice
              to interested persons.
                                                                           A-0443-17T4
                                        16
 According to the statute, "debts and taxes" have priority over a creditor who

obtained a judgment against a decedent before his or her death, and those

creditors have priority over those who obtained a judgment against an estate or

personal representative. "A judgment against an executor[ or] administrator

. . . unlike a judgment against [a] decedent in his lifetime, is not entitled to a

preference over other claims payable out of the assets of the decedent's estate."

7 N.J. Practice, Wills and Administration § 1283 (Alfred C. Clapp & Dorothy

G. Black) (rev. 3d ed. 2019). See also Ward v. Kaycoff,

9 N.J. Misc. 498

 (1931)

(noting that for judgments to be preferred, they must be actually entered during

decedent's lifetime); 7 N.J. Practice, Wills and Administration § 1279 (Alfred

C. Clapp & Dorothy G. Black) (rev. 3d ed. 2019). In fact, in cases such as

Farina's where the defendant dies during the litigation, our rules do not permit a

judgment to be entered against the decedent where the claim is not extinguished

by his or her death. See N.J.S.A. 2A:15-4 (eliminating the common law bar

against post-mortem suits and permitting actions against a decedent's estate);

see also R. 4:34-1(b) (addressing the substitution of representatives for deceased

parties to a litigation); Long v. Landy,

35 N.J. 44

, 53 (1961).

   Also without merit is Farina's contention that the IRS was required to file

notice of its claim under 26 U.S.C. § 6323 in order to have priority over her


                                                                          A-0443-17T4
                                       17
 claim. 26 U.S.C. § 6321 states that, "[i]f any person liable to pay any tax

neglects or refuses to pay the same after demand, the amount . . . shall be a lien

in favor of the United States upon all property and rights to property, whether

real or personal, belonging to such person." 26 U.S.C. § 6323(a) provides that

"[t]he lien imposed by section 6321 shall not be valid as against any purchaser,

holder of a security interest, mechanic's lienor, or judgment lien creditor until

notice thereof which meets the requirements of subsection (f) has been filed by

the Secretary." (Emphasis added).

   Because Farina never had a judgment against decedent, she had no lien

against his property prior to his death and was therefore a general claimant of

the Estate. See N.J.S.A. 2A:17-17 ("no real estate of any testator or intestate

shall be sold or in anywise affected by any judgment or execution against

executors or administrators"). With or without filing its lien, the IRS would thus

have priority over Farina's judgment under N.J.S.A. 3B:22-2(d).

      We also conclude that Farina's challenge to the award of commissions and

fees to the co-executors and the Estate's attorneys is without merit. We review

those awards for a "clear abuse of discretion," only "disturb[ing] a fee

determination . . . 'on the rarest of occasions . . . .'" Jacobs v. Mark Lindsay &

Son Plumbing & Heating, Inc.,

458 N.J. Super. 194

, 206 (App. Div. 2019)


                                                                          A-0443-17T4
                                       18
 (quoting Packard-Bamberger & Co. v. Collier,

167 N.J. 427

, 444 (2001)); see

also In re Estate of Summerlyn,

327 N.J. Super. 269

, 272 (App. Div. 2000)

(quoting In re Estate of Moore,

50 N.J. 131

, 149 (1967)) (addressing review of

awards of commissions).

      Here, Farina never pursued any challenge to the calculation of the Estate's

attorney's fees or the commissions awarded. Her only challenge was based upon

her allegation that Val III engaged in impermissible self-dealing through an

alleged conspiracy with counsel and Bentley. Both judges who considered her

claims found them to be without merit. We conclude that their findings were

supported by the evidence and their legal conclusions were correct. Because

Farina's allegations failed to establish any abuse of discretion in either the fee

award or the award of commissions, we have no reason to disturb the challenged

awards.

      Finally, to the extent that we have not specifically addressed any of

Farina's remaining arguments, we find them to be without sufficient merit to

warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).

      Affirmed.

Wednesday, September 18, 2019

NJ Law Center Estate Planning Seminar and Webinar

Webinar: Estate Planning for the “Difficult” Adult Child-How to Plan in Cases of Addicted, Perpetually Out of Work and Unhappily Married Children

Location: Online or NJ Law Center One Constitution Square New Brunswick, NJ 08901 [next to Rutgers Cook campus]

Date: October 10, 2019

Time: 12:00 PM-1:40 PM ET

Estate planning is rife with delicate situations. As lawyers, it is our job to be “gloom and doom in the room.” We need to ask the hard questions and plan for the worst-case scenarios. This can be especially difficult in estate planning, since it involves leaving hard-earned assets to cherished and beloved relatives. If we are going to protect those assets as we are hired to do, we must ask the tough questions, including questions about the ability of the testator’s children to take care of themselves after our client dies.

Join us as experts discuss how to plan for adult children who present especially difficult situations. Seasoned attorneys and an experienced accountant will discuss how to protect a testator’s assets when an adult child suffers from addiction, is out of work, is unhappily married or is in another similarly difficult situation. They will provide you with specific strategies for eliciting information at the client intake, how to discuss delicate and emotionally-charged possibilities and planning techniques that will care for the testator’s loved-ones while protecting their assets.

Topics include:

· Questions to ask at the client meeting that will help you elicit the most accurate information

· Will clauses that will protect assets from creditors and former spouses

· Pros and cons various trustees including banks and siblings

· Life estates- how to use them to your client’ best advantage

· Medicare, Medicaid, and life insurance

· Retirement accounts-when to change the beneficiaries and pitfalls to avoid

· Successful tax planning strategies

· How and when to seek a will reformation…and more.

Speakers: Beth C. Manes, Esq.

Manes Weinberg, LLC, Westfield

Alex Clark, CPA, CFE

Marcum, LLP, Roseland

Kenneth A. Vercammen, Esq.

Author ABA Wills & Estate Administration book

List Price: $125.00 USD

https://tcms.njsba.com/personifyebusiness/njicle/CLEPrograms/NJICLEEventsCalendar/MeetingDetails.aspx?productID=49471222

Monday, September 16, 2019

Property transferred more than three years not subject to inheritance tax VALERIE SHEDLOCK AND : TAX COURT OF NEW JERSEY JUDITH SOLAN, COEXECUTORS : DOCKET NO.: 008644-2018 OF THE ESTATE OF : ANTHONY CALLEO :

Property transferred more than three years not subject to inheritance tax

VALERIE SHEDLOCK AND : TAX COURT OF NEW JERSEY
JUDITH SOLAN, COEXECUTORS : DOCKET NO.: 008644-2018
OF THE ESTATE OF :
ANTHONY CALLEO :
:
Plaintiffs, :
:
Approved for Publication
v. : In the New Jersey
: Tax Court Reports
DIRECTOR, DIVISION OF TAXATION :
:
Defendant. :
:

Decided: April 30, 2019

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF
THE TAX COURT COMMITTEE ON OPINIONS

BIANCO, J.T.C.

This opinion shall serve as the courtâ€™s determination of cross-motions for summary

judgment concerning the appeal by plaintiffs, Valerie Shedlock and Judith Solan (â€œHeirsâ€), of the

assessment by defendant, the Director of the Division of Taxation (â€œDirectorâ€) with regard to the

Heirsâ€™ New Jersey inheritance tax liability for tax year 2016. The Heirs move to invalidate the

Directorâ€™s assessment, which included a two family home, located at 270 Farnham Avenue, Lodi,

New Jersey (â€œSubject Propertyâ€) as a taxable asset of the estate of the Anthony Calleo

(â€œDecedentâ€), and seek a refund of taxes, interest paid, and costs of suit. In opposition, the Director

moves to dismiss the complaint with prejudice claiming that, the transfer of the Subject Property

was made in contemplation of death and was intended to take effect at the Decedentâ€™s death, and

is therefore subject to the inheritance tax.

*
For the reasons set forth herein, the Heirsâ€™ motion is granted in part and denied in part;

the Directorâ€™s motion dismissing the complaint is denied.

BACKGROUND, FACTS, AND PROCEDURAL HISTORY

The following facts are not disputed. On July 24, 2013, the Decedent, then age eighty-

seven, executed a deed transferring his interest in the Subject Property to the Heirs for a sum of

less than $100. The deed was recorded in the Bergen County Clerkâ€™s office on August 2, 2013.

The deed does not contain any provision providing the Decedent with any right, title, interest,

control, or power in the Subject Property. On the same date, the Decedent executed a will devising

all of his estate, real, personal or mixed, to the Heirs.

Despite his transfer of the Subject Property to the Heirs, the Decedent continuously

remained in the Subject Property until his death on August 29, 2016, which was three years and

thirty-six days after the date of the execution of the deed, and three years and twenty-seven days

after the deed was recorded. While the Decedent was living at the Subject Property with a tenant,

the Heirs managed the Subject Property. There was a joint bank account between the Decedent

and one of the Heirs, Ms. Valerie Shedlock, which was used to deposit the monthly rental income

of $600 from the tenant and pay the maintenance expenses. Any additional maintenance expenses,

as well as real estate taxes, were paid from funds of the Decedent. The Decedent reported the

rental income and maintenance expenses for the Subject Property in his 2015 Federal income tax

return. He also listed the Subject Property as a principal residence.

On June 29, 2017, the Heirs filed a New Jersey Inheritance Tax Return for the Decedentâ€™s

estate (â€œinheritance tax returnâ€). The Subject Property was not included in the inheritance tax

return. The Division of Taxation (â€œTaxationâ€) audited the inheritance tax return and issued a notice

of assessment on May 7, 2018 that included as part of the estate, the Subject Property, valued at

2
$425,000 on the date of the Decedent's death. This was based on Taxationâ€™s legal conclusion that

the transfer of the Subject Property was intended to take effect at the death of the Decedent.

The Heirs paid the taxes and interest due under the notice of assessment to Taxation and

timely filed a complaint in the Tax Court on June 11, 2018, seeking a refund and cost of suit.

SUMMARY JUDGMENT

Summary judgment should be granted when there is no genuine issue as to any material

fact. See Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 528-29 (1995); R. 4:46-2. A

genuine issue of material fact exists "only if, considering the burden of persuasion at trial, the

evidence submitted by the parties, on the motion, together with all legitimate inferences therefrom

favoring the non-moving party, would require submission of the issue to the trier of fact." R. 4:46-

2(c). Here, the only issue is whether Taxationâ€™s deficiency notice of assessment with regard to the

Heirsâ€™ 2016 inheritance tax is invalid. The court finds that there is no genuine issue as to a material

fact in the matter; therefore, a decision by summary judgment is appropriate.

APPLICABLE LAW

A. Inheritance Tax

N.J.S.A. 54:34-1 imposes tax upon â€œthe transfer of property, real or personal, of the value

of $500.00 or over, or of any interest therein or income therefrom, in trust or otherwise, to or for

the use of any transferee, distributee or beneficiaryâ€ by will or by â€œdeed, grant, bargain, sale or

gift made in contemplation of the death of the grantor, vendor or donor, or intended to take effect

in possession or enjoyment at or after such death.â€ N.J.S.A. 54:34-1.

The second paragraph of N.J.S.A. 54:34-1(c) provides a presumption that a transfer

which was made more than three years prior to the death of the grantor shall not be deemed to

have been made in contemplation of death.

3
A transfer by deed, grant, bargain, sale or gift made without
adequate valuable consideration and within three years prior to the
death of the grantor, vendor or donor of a material part of his estate
or in the nature of a final disposition or distribution thereof, shall, in
the absence of proof to the contrary, be deemed to have been made
in contemplation of death within the meaning of subsection c. of this
section; but no such transfer made prior to such three-year period
shall be deemed or held to have been made in contemplation of
death.

[ N.J.S.A. 54:34-1(c) (emphasis added).]

Similarly, N.J.S.A. 54:34-1.1 extends a presumption that a transfer made more than three

years prior to the death of the grantor shall not be deemed to be intended to take effect at death.

However, this provision requires an additional condition for the grantor to meet: â€œirrevocable and

complete disposition of all reserved income, rights, interests and powers in and over the property

transferred.â€

A transfer of property by deed, grant, bargain, sale or gift wherein
the transferor is entitled to some income, right, interest or power,
either expressly or by operation of law, shall not be deemed a
transfer intended to take effect at or after transferorâ€™s death if the
transferor, more than 3 years prior to death, shall have executed an
irrevocable and complete disposition of all reserved income, rights,
interests and powers in and over the property transferred.

[Ibid. (emphasis added).]

B. The Presumption of Correctness

A presumption of correctness is attached to the Directorâ€™s assessment. See Meadowlands

Basketball Assocs. v. Dir., Div. of Taxation, 19 N.J. Tax 85, 90 (Tax 2000), affâ€™d, 340 N.J. Super.
76 (App. Div. 2001). Furthermore, â€œthe Directorâ€™s construction of the operative law, which is not

plainly unreasonable and with which the Legislature has not interfered, is entitled to prevail.â€

Aetna Burglar & Fire Alarm Co. v. Dir., Div. of Taxation, 16 N.J. Tax 584, 589 (Tax 1997) (citing

Metromedia, Inc. v. Dir., Div. of Taxation, 97 N.J. 313, 327 (1984)). However, â€œcourts remain

4
the final authority with respect to statutory construction and have no obligation to summarily

approve of the Directorâ€™s administrative interpretations.â€ Gray v. Dir., Div. of Taxation, 28 N.J.

Tax 28, 35 (Tax 2014). See N.J. Guild of Hearing Aid Dispensers v. Long, 75 N.J. 544, 575

(1978). â€œAn administrative agency may not under the guise of interpretation extend a statute to

include persons not intended, nor may it give the statute any greater effect than its language

allows.â€ Kingsley v. Hawthorne Fabrics, Inc., 41 N.J. 521, 528 (1964).

C. The Standard for Interpreting a Statute

When determining the meaning of a statute, the court must first consider the plain language.

See GE Solid State v. Dir. Div. of Taxation, 132 N.J. 298, 306 (1993). â€œIf the statute is clear and

unambiguous on its face and admits of only one interpretation, we need delve no deeper than the

act's literal terms to divine the Legislatureâ€™s intent.â€ State v. Butler, 89 N.J. 220, 226 (1982). See

Kimmelman v. Henkels & McCoy, Inc., 108 N.J. 123, 128 (1987). Nonetheless, â€œif the plain

language of a statute creates uncertainties or ambiguities, a reviewing court must examine the

legislative intent underlying the statute and â€˜construe the statute in a way that will best effectuate

that intent.â€™â€ Musikoff v. Jay Parrinoâ€™s the Mint, L.L.C., 172 N.J. 133, 140 (2002) (quoting N.J.

State League of Municipalities v. Depâ€™t of Cmty. Affairs, 158 N.J. 211, 224 (1999)). â€œIn

undertaking that task, courts may ascertain the intent of the drafters by looking to extrinsic sources

such as the statute's underlying purpose and history.â€ Ibid. (citing Clymer v. Summit Bancorp.,

171 N.J. 57, 66 (2002)). â€œAbove all, [a court] must seek to effectuate the â€˜fundamental purpose

for which the legislation was enacted.â€™â€ Ibid. (quoting Twp. of Pennsauken v. Schad, 160 N.J.
156, 170 (1999)).

ANALYSIS

A. N.J.S.A. 54:34-1(c): Transfer Made in Contemplation of Death

5
Although the Director did not specifically use the words â€œmade in contemplation of deathâ€

in the motion papers, the Director raised arguments that relate to the â€œmade in contemplation of

deathâ€ provision. 1 Accordingly, the court finds that a brief discussion of the â€œmade in

contemplation of deathâ€ provision, and the motive of the Decedent when making the transfer, is

appropriate here.

To that end, this court is satisfied that the legislative intent underlying the statute clearly

supports the principle that the court need not address the motives of a decedent where the transfer

of a property was made more than three years prior to the death of a decedent. Before amending

N.J.S.A. 54:34-1 in 1951, the court was required to examine the motives of the donor making the

gift, even after the court had concluded that the transfer was made more than three years prior to

death and the transfer was not presumptively made in contemplation of death. See Provident Trust

Co. v. Margetts, 5 N.J. Super. 420 (App. Div. 1949).

Our attention is directed only to the two irrevocable trusts, which
the respondent claims were established in contemplation of death.
At the outset, it is pertinent to point out, that since the transfers under
review were completed by the testatrix more than five years before
her death, the statutory presumption, under R.S. 54:34-1c, does not
arise. Therefore, the burden is upon the respondent to prove that the
transfers were made in contemplation of death. Lee v. Walsh, 141
N.J. Eq. 418 (Prerog. Ct. 1948); Squier v. Martin, 131 N.J. Eq. 263
(Prerog. Ct. 1942); MacGregor v. Martin, 126 N.J.L. 492 (Sup. Ct.
1941).
It is quite clear that the impelling or determinative motive of the
donor in making the gift is the test as to whether or not such gift was
made in contemplation of death.

[Id. at 424.]

1
The Director argued that the Decedent â€œtransferred the Subject Property with the subject of his
death on his mindâ€ in the brief and during oral argument.
6
However, pursuant to the 1951 amendment, this burden shifting and other considerations

are no longer applicable, especially when the transfer has occurred more than three years prior to

the death of a decedent. 2 Our Stateâ€™s Supreme Court in In re Estate of Lichtenstein, 52 N.J. 553

(1968) discussed the legislative history of the 1951 amendment. Before the amendment, there was

no time limitation on transfers which could be considered as made in contemplation of death. Id.

at 566. Therefore, it was necessary for the court to examine the motives of the donor even when

the transfer was made more than three years before the death of a decedent. The three-year

presumptive period provision was added through the amendment, in order to conform to the federal

estate tax law, 26 U.S.C.A. 2035(b), which had been amended in 1950. The Supreme Court looked

to the Senate Finance Committee report (S. Rept. No. 2375, 81st Cong., 2d Sess., 1950- 2 C.B.

2
Although motive is no longer applicable when, as here, a transfer is made more than 3 years
before death, the court is satisfied, arguendo, that the result would be the same. The Director
would not meet the burden of showing that the Decedent was motivated to transfer the Subject
Property in contemplation of his death. In Provident Trust Co., the Appellate Division provided
the test for determining whether a gift was made in contemplation of death: â€œâ€˜the test . . . is whether
the determinative motive was â€œof the sort which leads to testamentary disposition.â€ The inquiry,
therefore, is whether the gift was essentially testamentary in character. Was it made as a substitute
for a testamentary disposition? Was the generating thought of death as distinguished from
purposes associated with life?â€™â€ Provident Trust Co., 5 N.J. Super. at 424 (quoting Central
Hanover Bank & Trust Co. v. Martin, 129 N.J.L. 127 (E. & A. 1942)). At the same time, the
Appellate Division cautioned that â€œcare [should] be taken that the things relied upon as a revelation
of motive are not distorted beyond their real significance,â€ and â€œ[t]he law will not pronounce a
definitive judgment as to what lies in the mind and breast of the donor upon outward tokens that
are equivocal. Ibid. (citing Moore v. Martin, 125 N.J.L. 189 (Sup. Ct. 1940)). In applying the
aforementioned standard, the Appellate Division considered the age and health condition of the
donor at the time of the transfer, a desire to evade inheritance tax, and the fact that the will, and
other documents were executed on the same day. The court noted that, â€œ[a]ge alone . . . is not
decisive. It is a circumstance which must be considered along with all other evidence . . . The fact
that [several] instruments were all signed on the same day is [also] not decisive of the donor's
motive, but again is a circumstance to be considered.â€ Ibid. Similar to the decedent in Provident
Trust Co., the Decedent in the present matter transferred the Subject Property more than three
years prior to his death, and did not have a prior Will. Furthermore, and there is no proof that the
Decedentâ€™s health at the time of the transfer was severely deteriorated, nor that the transfer of the
Subject Property was merely a ploy to evade inheritance tax.
7
524-5) to see the purpose of the federal amendment, â€œwhich is equally applicable to the New Jersey

amendment.â€ Id. at 567.

Undoubtedly many gifts in contemplation of death have escaped the
estate tax because of the difficulty which the Government
encounters in reconstructing the motives of the deceased. On the
other hand, complaints have been received that the Bureau of
Internal Revenue has in some cases asserted that gifts made many
years before death were in contemplation of death without having
much basis for the assertion. As a result executors of estates are
confronted with an unpleasant choice between compromising the
asserted tax liability or engaging in expensive and difficult litigation.
At the present time this problem hangs over any person who makes
a gift, even though he expects to live for many years, unless he can
prepare evidence demonstrating that the gift was made primarily for
nontax reasons.

[Ibid. (quoting S. Rept. No. 2375, 81st Cong., 2d Sess., 1950-2 C.B.
524-5) (emphasis added).]

Section 2035(b) removes from the scope of the contemplation of
death clause all transfers made more than 3 years prior to the date of
death. On the other hand, the burden of showing that the transfer
was not in contemplation of death will be borne by the estate in all
cases where the transfer was made within a period of 3 years ending
with the date of death. This will strengthen the position of the
Government in cases where the transfer occurred between 2 and 3
years prior to the date of death.

[Ibid. (quoting S. Rept. No. 2375, 81st Cong., 2d Sess., 1950-2 C.B.
524-5) (emphasis added).]

In re Estate of Lichtenstein, the Court was satisfied that the Legislature did not only intend

to shift the burden from the taxpayer to the government, but it was the intent of the Legislature to

impose a de facto three-year statute of limitation by adding a clause: â€œbut no such transfer made

prior to such three-year period shall be deemed or held to have been made in contemplation of

death.â€ N.J.S.A. 54:34-1(c). The Legislature clearly intended to limit the scope of the

governmentâ€™s investigation in order to protect the public from â€œan unpleasant choice between

8
compromising the asserted tax liability [and] engaging in expensive and difficult litigation.â€ In re

Estate of Lichtenstein, 52 N.J. at 567 (citation omitted). Accordingly, as the transfer of the Subject

Property here was executed more than three years prior to the death of the Decedent, the court

finds that the transfer was not deemed to have been made in contemplation of death under N.J.S.A.

54:34-1.

B. N.J.S.A. 54:34-1.1: Transfer Intended to Take Effect at Death or after Death

The Director mainly argues that the transfer of the Subject Property had the effect of a

transfer at death because (1) the Decedent received rental income from the tenant and (2) the Heirs

postponed the enjoyment of the Subject Property as the Decedent remained in possession until his

death. The court finds, however, that the legislative purpose and history of N.J.S.A. 54:34-1.1,

and relevant case law, render the Directorâ€™s argument without merit.

In In re Lambert, 63 N.J. 448 (1973), our Stateâ€™s Supreme Court analyzed the purpose and

history of the N.J.S.A. 54:34-1.1. The Court looked into the statement annexed to the bill which

states that:

This bill is designed to cure a discrepancy between the New Jersey
Transfer Inheritance Tax Law and the Federal Estate Tax Law and
the Estate Tax Laws of many of our sister states; notably New York
and Pennsylvania. New Jersey now taxes trusts merely because the
death of a grantor causes a shift in beneficial interest from one
person to another. The tax is asserted even though the grantor has
retained no beneficial interest in, and no power over, the property.
Such trusts are exempt under Federal and New York statutes and
under the Pennsylvania Statute as construed by the cases. The
proposed act eliminates this unfairness to residents of New Jersey in
comparison to residents of neighboring states. The proposed bill
does not affect the present rules of taxation of gifts "in
contemplation of death."

[Id. at 452.]

9
The statement indicates that in adopting N.J.S.A. 54:34-1.1 to harmonize federal estate tax law

with the laws of neighboring states, the Legislature did not intend to tax when the grantor does not

retain any beneficial interest and power over the transferred property.

The Court in In re Lambert examined earlier judicial history, which was also discussed in

In re Estate of Lichtenstein. See In re Estate of Lichtenstein, 52 N.J. at 576. The Court discussed

In re Brockett, 111 N.J. Eq. 183, 186-190 (Prerog. Ct. 1932), which analyzed the intended scope

of the â€œintended to take effect at death or after deathâ€ provision. In In re Brockett, the trial judge

concluded that the â€œintended to take effect at death or after deathâ€ provision does not intend to tax

an immediately effective gift of the absolute title to a property even when the remainderman might

not possess or enjoy the property until after the death of the donor, because â€œin practical effect and

substance, there is a complete, present gift of the entire estate whereby the donor is immediately

divested of all interest and enjoyment.â€ Id. at 189; In re Lambert, 63 N.J. at 453. This conclusion

was once reversed by the Supreme Court in Koch v. McCutcheon, 111 N.J.L. 154 (Sup. Ct. 1933),

where the Court made a similar conclusion to the Directorâ€™s arguments in the instant matter.

However, the conclusion in In re Brockett was later revived by the enactment of the current statute

(codified at N.J.S.A. 54:34-1.1).

The Court in In re Lambert examined the history of the enactment of N.J.S.A. 54:34-1.1,

which was preceded by litigation brought by a New York attorney representing a wealthy family.

In that matter, the New York attorney argued not only that the decisions like Koch had become

unfair to New Jersey residents, but also that the State of New Jersey would lose inheritance tax

revenue considering that New York and Pennsylvania have more favorable inheritance tax law. In

re Lambert, 63 N.J. at 456-57. The Director in In re Lambert agreed to the position taken by the

10
New York attorney and â€œit was approved and recommended by the State Treasurer and the

Attorney General and it became L. 1955, c. 135.â€ Id. at 457.

Considering the clear legislative history, the Court in In re Lambert concluded that where

the transferor retained no interest in the property or completely and irrevocably disposed an interest

in the property more than three years before death, the transfer is deemed not intended to take

effect at the transferorâ€™s death. Id. at 458-59.

A similar result was reached in previous decisions. In Nazzaro v. Neeld, 18 N.J. Super. 56

(App. Div. 1952), for example, the Appellate Division addressed whether the transfer was intended

to take effect at the transferorâ€™s death. The Appellate Division looked into the test proposed by

the Supreme Court in Schroeder v. Zink, 4 N.J. 1 (1950). The Supreme Court stated that â€œ[t]he

important question is â€˜whether the shifting of the possession and enjoyment of the subject matter

of the succession is dependent upon the settlor's death. Is his death a determinative factor in the

devolution of the possession and enjoyment of the estates granted?â€™â€ Id. at 9 (citing Hartford v.

Martin, 122 N.J.L. 283, 287 (E. & A. 1938). In view of this test proposed by the Supreme Court,

the Appellate Division concluded that the transfer was â€œcomplete, unqualified, and consummateâ€

because the transferor or decedent reserved no right to revoke or amend. Nazzaro, 18 N.J. Super.

at 62.

Similarly, the Supreme Court in In re Estate of Lichtenstein concluded that:

So taxability in this state under the "at or after death" provision has
required that the settlor retain in himself some realistic interest,
power or control or some other "string" during his lifetime, or his
death must be the determinative and indispensable event in the
shifting of economic benefits and burdens. Otherwise the transfer is
not taxable under this provision. See e.g., In re Kellogg, 123 N.J. Eq.
322 (Prerog. 1938); Nazzaro v. Neeld, 18 N.J. Super. 56 (App. Div.
1952).

11
The settlor retained no realistic beneficial interest or power
whatever. The divestment was complete at inception without any
possibility of reverter in fact. Every possible contingency is covered.
A final remainder to intestate takers precludes any failure of ultimate
disposition.

[In re Estate of Lichtenstein, 52 N.J. at 578.]

With the legislative history and our higher courtsâ€™ precedent in mind, this court finds that

the Directorâ€™s position contradicts Taxationâ€™s position in 1955 as described in In re Lambert and

merely mirrors previous directorsâ€™ and Taxationâ€™s approach prior to the amendment.

In Newberry v. Walsh, 20 N.J. 484, 490 (1956), our Stateâ€™s Supreme Court examined

whether the transfers to a trust were intended to take effect at death of the decedent, given the

decedentâ€™s power to â€œalter, amend, or revokeâ€ the transfers and change beneficiaries. By reserving

this power to the decedent, the Court concluded that the ultimate beneficiaries of the trust were not

confirmed until death of the decedent. Accordingly, the Court found the transfers were intended

to take effect at death of the decedent and were taxable. Unlike the decedent in Newberry, the

Decedent in the present matter had no power to modify the transfer. Simply because the Decedent

reported the rental income from the tenant as income in his tax return, and continued to reside at

the Subject Property, does not mean that the Decedent retained control over said property. See

Gray, 28 N.J. Tax at 35 (â€œAlthough [the decedent] retained income and beneficial enjoyment of

her residence for the trust period, decedent abandoned control over the property . . . [thus,] the

transfers shall not be deemed intended to take effect at or after her death.â€). It is undisputed by

the very terms of the deed of transfer that the Decedent retained no interest, right to possession or

income in, of, and from the Subject Property. There is no statement in the deed of transfer that

establishes the Decedentâ€™s exclusive right to receive rental income from the tenant or to remain in

the Subject Property until his death. At all times, the Heirs had full control over, and the right to

12
the rental income. The Decedent only had a right to use the funds in the joint bank account. The

Decedent merely handled the fund in the joint bank account to maintain the Subject Property. It

is undisputed that the Heirs allowed the Decedent to handle the fund of joint bank account because

the Decedent did not use the rental income for the benefit of himself, but rather, he used the income

for the benefit of the Subject Property, which was owned by the Heirs.

The Director further relies on the Tax Courtâ€™s decision in Estate of Riper v. Dir., Div. of

Taxation, 31 N.J. Tax 1 (Tax 2017) to argue that the Decedent retained a de facto life estate in the

Subject Property. This court, however, finds Estate of Riper factually distinguishable. In Estate

of Riper, â€œthe express purpose of the trust was â€˜to provide a residenceâ€™ for â€˜the lifetimeâ€™ of the

transferors.â€ Id. at 2. Also, in Estate of Riper the trustee was required to use the proceeds of the

sale of the property to provide shelter and housing for the transferors. Ibid. n.1. Therefore, clear

and convincing evidence was presented that the transferors retained an interest in the property.

Here, by contrast, the Decedent did not have any interest in the Subject Property. The court could

not find any statement entrusting a life estate or any interest to the Decedent in the deed. Therefore,

the court concludes that all of the Decedentâ€™s right and interest in the Subject Property was

transferred on July 24, 2013.

Our Stateâ€™s Supreme Court in In re Estate of Lingle, 72 N.J. 87 (1976) concluded that three

factors must usually exist in the inter vivos transactions to determine that the transfer was intended

to take effect at or after death:

(1) the grantor or settlor must transfer some property, or interest
therein, while retaining for his lifetime some or all of the economic
benefits therefrom; (2) there must be a consequent postponement of
enjoyment on the part of the grantee, promisee or other beneficiary;
and (3) both the grantor's retention and the grantee's postponement
of enjoyment must be for a period determinable by reference to the
grantorâ€™s death.

13
[Id. at 95.]

Immediately after the above statement, the Court rephrased the above factors and concluded that:

Conversely, lifetime transfers will be held not to come within the â€œat
or after deathâ€ clause where (1) the retention of benefits by the
grantor is not determined by reference to the duration of his life; (2)
the grantor has completely divested himself of his entire interest in
the transferred property; or (3) there was full and adequate
consideration for the property transferred.

[Ibid. (emphasis added).]

The Director argues that the transfer by the Decedent meets the factors in Lingle as the

Decedent received rental income and the Heirs postponed enjoyment of the Subject Property until

the death of the Decedent. The Directorâ€™s argument fails, however, because the Decedent only

received the rental income and remained in the Subject property at the discretion of the Heirs; the

transfer of the Subject Property was complete and the Decedentâ€™s title was conveyed without any

reference to a right to receive rental income or retain a life estate. Accordingly, the court finds

that â€œthe grantor has completely divested himself of his entire interest in the transferred property,â€

ibid., and therefore has met one of the three elements delineated by the Court in In re Estate of

Lingle. The Subject Property should therefore, not be included in the Decedentâ€™s estate for

inheritance tax purposes.

Finally, the Director argues that the transfer of the Subject Property meets N.J.A.C. 18:26-

5.8(b), which states that â€œ[t]he transfer is taxable if by any means whatsoever the transferor has in

form transferred property but has deferred the actual possession, use, or enjoyment of the property

until a time which can only be measured by reference to the transferor's death,â€ id., because the

Heirs deferred possession of the Subject Property. In courtâ€™s view, considering the legislative

history and purpose of N.J.S.A. 54:34-1.1, the Directorâ€™s interpretation of the statute, as set forth

in N.J.A.C. 18:26-5.8(b), is overreaching and flawed. See State v. Gill, 47 N.J. 441, 444 (1966)

14
(requiring avoidance of statutory interpretations "which lead to absurd or unreasonable results").

The statute merely looks to whether a decedentâ€™s interest, right, and power was conveyed three

years prior to death, see N.J.S.A. 54:34-1.1, not whether â€œthe transferor has in form transferred

property but has deferred the actual possession, use, or enjoyment of the property until a time

which can only be measured by reference to the transferor's death.â€ N.J.A.C. 18:26-5.8(b). â€œAn

administrative agency may not under the guise of interpretation extend a statute to include persons

not intended, nor may it give the statute any greater effect than its language allows.â€ Kingsley v.

Hawthorne Fabrics, Inc., 41 N.J. 521, 528 (1964); In re Lambert, 63 N.J. at 458 (â€œthe Division [of

Taxation] may not, under the guise of administrative interpretation, adopt a view which conflicts

with the statute it is charged with administering.â€).

C. Cost of Suit

The Heirs request refund of litigation costs. However, under R. 8:9-2, cost of suit is not

allowed. The general rule is that â€œeach litigant bears his, her or its litigation costs even where there

is litigation which is of marginal merit.â€ Venner v. Allstate, 306 N.J. Super. 106, 113 (App. Div.

1997).

CONCLUSION

For all of the foregoing reasons, the court concludes that the value of the Subject Property

shall not be included in the estate of the Decedent for New Jersey inheritance tax liability purposes.

The court is satisfied that the transfer of the Subject Property was not made in contemplation of

death, nor was it intended to take effect at or after death under N.J.S.A. 54:34-1(c) and N.J.S.A.

54:34-1.1. Accordingly, the Heirsâ€™ motion to invalidate the Directorâ€™s notice of assessment and

refund the taxes and interest paid is granted; however, their demand for costs of suit is denied. The

Directorâ€™s cross-motions for summary judgment is denied.

15
The parties shall submit computations pursuant to R. 8:9-3 within 30 days of the date of

this opinion, establishing the refund amount with interest computed in accordance with this

opinion and through the date hereof. The courtâ€™s order and final judgment will thereafter be

uploaded on eCourts. The court retains jurisdiction in the event the amount of the refund and

interest cannot be agreed to by the parties pursuant to computations.