New Jersey Superior Court Reports
MATTER OF SAMUEL LEE, A-0547-05T1 (N.J.Super. 11-30-2006)
IN THE MATTER OF THE PROBATE OF THE WILL OF SAMUEL LEE,
deceased. No. A-0547-05T1. Superior Court of New Jersey,
Appellate Division. Argued September 27, 2006. Decided
November 30, 2006.
On Appeal from the Superior Court of New Jersey, Chancery
Division, Bergen County, Docket No. BER-P-146-03.
Before Judges STERN, A.A. RODR??GUEZ and BAXTER.
Walter A. Saurack argued the cause for appellant Trustees
of Stevens Institute of Technology (Satterlee Stephens
Burke & Burke, attorneys; Mr. Saurack, on the brief).
Peter R. Bray (Bray, Chicocca & Miller, attorneys) argued
the cause for respondent Betty MacDonald, and Lorraine A.
Abraham (Schiffman, Abraham, Kaufman & Ritter, attorneys)
argued the cause for respondent Alan Merker (Richard I.
Miller and Ms. Abraham, on the joint brief).
The opinion of the court was delivered by
STERN, P.J.A.D.
The trustees of Stevens Institute of Technology, one of two
charitable residuary legatees under the will of Minerva
Lee, appeal from a judgment of August 26, 2005, which
directed that taxes payable from the corpus of Qualified
Terminable Interest Property (QTIP) trusts created under
the will were to be paid before the distribution of the
residuary estate, resulting in a reduced residuary estate
for distribution to the charities under Article IV of
Minerva’s will.[fn1] The issue arises incident to the
probate of the will of Minerva’s husband, Samuel Lee.
Specifically, the contested order provides that “taxes
payable by the QTIP trusts by virtue of inclusion in
[d]ecedent [Samuel’s] gross estate shall be paid out of the
Trusts’ corpus before distribution, and the remainder shall
be then distributed in accordance with the terms of Article
Fourth of Minerva Lee’s will.” In essence, in his August 5,
2005 decision, the probate judge concluded that Minerva’s
bequests to her daughter, Betty MacDonald, and Betty’s
family were not to be reduced by the amount of taxes
attributable to the QTIP trusts, and that the taxes were to
be paid from the trust corpus before the distribution to
the charities.
Appellant argues that “the probate court erred because it
did not exonerate the charitable beneficiaries of the QTIP
trusts from the federal estate taxes attributable to the
QTIP trusts [under federal law]” and “because it did not
exonerate the charitable beneficiaries of the QTIP trusts
from the New Jersey estate taxes attributable to the QTIP
trust in accordance with New Jersey case law.”
I.
Samuel and Minerva Lee were married and had one child,
David, who passed away in 1987. David was not married and
had no children. In October 1998, Minerva adopted Betty
MacDonald, who was the daughter of her deceased twin
sister. Particularly after David’s death, Betty and Minerva
became very close. It is undisputed that “Betty provided
the assistance and care Minerva and Sam required due to
their advancing age [and that] Minerva was extremely
grateful to Betty and wanted to ensure that this care would
continue in the event Minerva predeceased Sam.”[fn2]
Minerva died on February 18, 1999, leaving a Last Will and
Testament and a codicil, both dated November 23, 1998.[fn3]
The will, which was admitted to probate on April 1, 1999,
created the QTIP trusts. Article Third of Minerva’s will
directed that her residuary estate was to be divided into a
“Spouse’s Part Trust” and “Family Part Trust” for Samuel’s
benefit during his life. Minerva’s will further provided
the manner in which the QTIP trusts would be distributed
after his death and for the payment of estate taxes.
Specifically, Article First of Minerva’s will related to
the payment of taxes on her estate. It provided:
(b) I direct that all estate, inheritance, transfer,
legacy or succession taxes, including state and federal,
which may be assessed or imposed upon the transfer of any
property under this Will, or upon property which may be
part of my taxable estate for the purpose of any said tax
shall, in the event my husband, SAMUEL LEE, survives me,
be paid out of the Family Part of my residuary estate, as
hereinafter defined in Article THIRD, it being my
intention that the Spouse’s Part and any other property
passing to my husband which is not included in my estate
for federal estate tax purposes be exonerated to the
greatest extent possible from payment of all said state or
federal taxes. In the event my said husband, SAMUEL, does
not survive me, said taxes shall be paid out of my
residuary estate. Notwithstanding the foregoing, if any
tax shall be payable at, after or with respect to my
death, pursuant to Internal Revenue Code Section 2036
(as permitted under 2207B), Section 2041 or Section 2044
or Chapter 13 of the Internal Revenue Code of 1986, as
amended, or corresponding provision under state law, no
part of such tax shall be paid from my estate.
Any estate and other related taxes due at my death by
virtue of any charitable remainder unitrust or any other
trust created by me during my lifetime, shall be payable
from my residuary estate. It is my intent that the
secondary beneficiaries of such trust(s) shall not be
liable for any of such taxes.
Article Third divided the residuary estate into two parts:
In the event my husband, SAMUEL, shall survive me, my
entire residuary estate shall be divided into the
following two parts:
The first such part, hereinafter called the “Spouse’s
Part,” which shall constitute a pecuniary legacy and not a
fractional share of my estate, shall be equal in value to
that amount determined pursuant to Article TWELFTH of
this Will.[fn4]
The second such part, hereinafter called the “Family
Part,” shall consist of the remainder of my estate after
the allocation of assets to the “Spouse’s Part.”
Each part was then placed in trust.
Article Fourth embodied the residuary estate. It provided:
Upon the death of my husband, SAMUEL, any balance of
property remaining in the trusts being administered under
paragraphs (1) and (2) of Article THIRD, or in the event
my said husband, SAMUEL, does not survive me, all the
rest, residue and remainder of my estate, as the case
may be, I give, devise and bequeath to my trustees, as
follows:
First, I give and bequeath the sum of One Hundred Sixty
Five Thousand ($165,000.00) Dollars to my child, BETTY
MacDONALD, absolutely and forever, if living, and if not,
to her lawful issue, per stirpes, and if none, then this
legacy shall lapse;
Second, I give and bequeath the sum of Six Hundred
Thousand ($600,000.00) Dollars to my trustees, hereinafter
named, to be held for the benefit of my child, BETTY
MacDONALD, for the following uses and purposes:
. . . .
Third, all the rest, residue and remainder of my estate I
give and bequeath as follows:[fn5]
(1) One-half (1/2) thereof I give, devise and bequeath to
the Endowment Foundation of North Jersey and Greater
Clifton-Passaic Federations [now known as “UJA”] . . .;
[2] One-half (1/2) thereof, I give, devise and bequeath
to Stevens Institute of Technology, located in Hoboken,
New Jersey.
[Emphasis added.]
As recited in the Settlement Agreement, “Minerva’s
Executors elected to divide, and did divide, the Spouse’s
Part Trust into two separate trusts (collectively, the
‘QTIP Trusts’), and elected to treat the QTIP Trusts as
qualified terminable interest property under §
2056(b)(7) of the Internal Revenue Code of 1986.” That
election deferred the tax on the trusts until Samuel’s
death when the value of the trusts became part of his gross
estate[fn6] under 26 U.S.C.A. § 2044.[fn7]
On November 23, 1998, Samuel executed a Last Will and
Testament. He also executed codicils in August and
September 2002. On February 26, 2003, he executed a new
will which provided for charitable donations different than
his wife’s bequests and did not provide for Betty.[fn8]
Samuel died on March 12, 2003. In accordance with Minerva’s
will, the QTIP trusts were included as part of his taxable
estate.
On March 28, 2003, the executor appointed in Samuel’s 2003
will filed a complaint in the Probate Part, seeking an
order admitting the 2003 will to probate. Betty filed a
caveat alleging, among other things, that the 2003 will had
been “the product of undue influence and/or executed
without testamentary capacity.” Betty sought to set aside
the 2003 will and admit Samuel’s 1998 will and subsequently
executed codicils to probate. One of the issues involved
“the apportionment of the estate tax liability generated as
a result” of including the QTIP trusts established in
Minerva’s will as part of Samuel’s taxable estate.
On March 28, 2005, the parties entered into a settlement
agreement, admitting the 2003 will to probate.[fn9] The
settlement agreement provided in part:
The QTIP Trusts shall be required to pay Samuel’s estate
an amount equal to (a) the total amount of federal estate
taxes and New Jersey estate taxes payable by reason of
Samuel’s death, less (b) the total amount of those taxes
which would have been payable by reason of Samuel’s
death if the QTIP Trusts had not been includible in
Samuel’s gross estate for federal estate tax purposes
(collectively, the “Estate Tax Contribution Amount”).
With regard to payments by the QTIP trusts, the settlement
agreement also stated:
Within five (5) business days after the Effective Date of
this Agreement, the QTIP Trust shall pay to Samuel’s
estate an amount equal to one-half (1/2) of the fair
market value as of the date of Samuel’s death of all the
assets owned by the QTIP trusts as of that date (the
“Approximate Estate Tax Contribution Payment”), on account
of the QTIP Trusts’ aforesaid obligation to pay Samuel’s
estate for such estate taxes. Upon the completion of the
federal estate tax proceeding and the New Jersey estate
tax proceeding for Samuel’s estate, the QTIP Trusts shall
thereupon pay to Samuel’s estate (if the amount of the
Approximate Estate Tax Contribution Payment is less than
[the] Estate Tax Contribution Amount), or Samuel’s estate
shall pay the QTIP Trusts (if the Approximate Estate Tax
Contribution Payment is more than the Estate Tax
Contribution Amount) the difference between the
Approximate Estate Tax Contribution Payment and the Estate
Tax Contribution amount.
Within five (5) business [days] after the Effective Date
of this Agreement, the QTIP Trusts shall pay to Samuel’s
estate an amount equal to one-half (1/2) of the aggregate
sum of the fiduciary income received or accrued by, plus
the net principal gains (both realized and unrealized)
earned by, the QTIP Trusts from December 12, 2003 through
the Effective Date of this Agreement (the “Income
Component”). Upon the computation of the Estate Tax
Contribution Amount and the determination of the
adjustment, if any, required by the immediately preceding
paragraph of this Agreement, the Income Component shall
be similarly adjusted.
Under the Settlement Agreement, the 2003 will was admitted
to probate in the “Final Judgment” entered on May 16, 2005.
The Settlement Agreement, however, did not resolve all the
issues among the parties. It did not resolve issues
relating to the payment of estate taxes and the impact
thereof on the balance of the QTIP trusts and Family Part
Trust and the amounts for distribution among the remainder
beneficiaries. As a result, “the trustees of the QTIP
Trusts and Family Part Trust and all the remainder
beneficiaries of those trusts reserve[d] all of their
rights” to contest the allocation and payment of federal
and state taxes.
On May 27, 2005, appellant and UJA (the “charities”) filed
a motion for an order holding that the QTIP trusts’ estate
tax obligation should be charged to Betty’s shares alone
and that they should receive their reasonable attorneys’
fees and costs.[fn10] Betty countered with the
certification of Alan S. Sussman, Esq., the Lee’s attorney
and the scrivener of the 1998 wills, and Alan Merker, a
certified public accountant, and executor and trustee of
the trusts created by Minerva.[fn11]
In his certification, Sussman “unequivocally state[d] that
Minerva’s intention with respect to the QTIP Trust, was to
benefit her husband, Sam Lee, first; her daughter, Betty
MacDonald, second; and the charities third.” He further
“unequivocally state[d] that Minerva intended the specific
legacies to Betty and Betty’s trust to be paid in full and
that the amount passing to charity, if any, consist of the
balance after the payment of any debts expenses and
liabilities, including taxes.” Similarly, Merker stated
that”[t]here was no question in [his] mind that Minerva’s
intent was that the Trusts should benefit Betty MacDonald
and her family.” He explained:
Betty had become like a daughter to her. In fact, as one
is well-aware, Minerva adopted Betty, a clear indication
of her feelings. Betty was the daughter of her deceased
twin sister. Betty was her companion in her later years.
Minerva wanted to insure that should something happen to
her, Betty would be there to help take care of Sam, a
task which Betty did extremely well without later
interference of others.
As for the charitable bequests in her will, Merker
certified:
While Minerva was somewhat charitable in her life, she
would often say to me, “I already gave them money. Why do
they want more?” The charitable bequests in her Will,
therefore, were an afterthought. While she wanted to give
them something, she certainly did not want them to have
the majority of the Trusts’ interest. Those monies were to
be reserved for her blood kin, Betty MacDonald and her
children.
Thus, Merker “firmly believe[d] that Minerva Lee would not
have wanted Betty MacDonald’s share diminished by the taxes
the charities seek to extract from her.”
In a written opinion, dated April 5, 2005, following oral
argument, the judge concluded that the trusts were required
to account to the estate for the taxes.[fn12] The court
found that the express terms of the QTIP trusts established
under Minerva’s will directed the order and preference for
the distribution of their assets. He noted that “Minerva’s
will clearly lays out that there are to be specific
legatees which are to take place before distribution to the
charitable institutions,” and therefore found “no reason
that the Charities are in fact entitled to any amount
before distribution takes place.” He thus concluded that
“[t]axes assessable to the QTIP Trusts by virtue of [their]
inclusion in Samuel’s gross estate shall be paid out of the
Trusts’ corpus before distribution,” with the remainder to
then be “distributed in accordance with the terms of
Article Fourth of Minerva’s will.” According to the judge:
Here, it is apparent to this court, both by the
testamentary direction itself and the testimony provided
in the certifications, that Minerva did in fact intend to
provide for individual beneficiaries, and specifically
that of her “child”, her daughter Betty. Taxes assessable
to the QTIP Trusts’ by virtue of inclusion in Samuel’s
gross estate shall be paid out of the Trusts’ corpus
before distribution, the remainder shall then be
distributed in accordance with the terms of Article Fourth
of Minerva’s Will.
II.
Appellant contends that the trial court erred by failing to
find that the Internal Revenue Code (“I.R.C.”), 26 U.S.C.A.
§ 2207A, and its implementing regulations, 26 C.F.R.
§ 20.2207A-1, “exonerate the charitable
beneficiaries from the federal estate taxes attributable to
the QTIP trusts.” Specifically, appellant argues that
“I.R.C. § 2207A and the Treasury Regulations govern
the apportionment of the federal estate taxes among the
QTIP trusts beneficiaries,” thereby preempting any state
law analysis of the predeceased spouse’s intent. Appellant
further argues that, under 26 C.F.R. §
20.2207A-1(a)(1), there is no right of recovery from the
QTIP trusts of assets for which a charitable deduction was
allowed.[fn13] Thus, appellant contends that the tax
obligation for the QTIP trusts should be charged only
against Betty and her family’s share of the remainder.
In its written opinion, the court noted that “[g]enerally,
state law controls the apportionment of federal and state
tax liability,” and “[i]n the absence of directions to the
contrary, [N.J.S.A. 3B:24-4] apportions the estate tax pro
rata among the beneficiaries.” The court, however,
recognized that QTIP trusts imposed “additional
considerations concerning recovery with regard to federal
estate taxes.” Specifically, the court found that I.R.C.
§ 2207A(a)(1)(a) gave Samuel’s estate “the right to
recover federal estate taxes from the [QTIP trusts’]
beneficiaries named by the pre-deceased spouse’s will in
order to pay estate taxes pursuant to the inclusion of a
QTIP trust in a gross estate”; and by virtue of I.R.C.
§ 2207A(a)(1), “[t]he estate may seek to recover the
amount by which the total estate tax paid exceeds the total
tax payable that would have been payable if the value of
the property had not been included in the gross estate.”
See 26 U.S.C.A. § 2207A(a)(1)-(2). Thus, although
federal law exempted charitable beneficiaries of QTIP
trusts from taxation, the court nonetheless concluded that
absent any express provision in her will to the contrary,
Minerva’s intent controlled the appropriate distribution of
the assets remaining in the QTIP trusts.
The Internal Revenue Code, 26 U.S.C.A. § 2001(a),
imposes a tax on the transfer of the taxable estate of
every decedent who is a citizen or resident of the United
States.[fn14] Generally, “Congress intended that the
federal estate tax should be paid out of the estate as a
whole and that the applicable state law as to the
devolution of property at death should govern the
distribution of the remainder and the ultimate impact of
the federal tax. . . .” Riggs v. Del Drago, 317 U.S. 95,
97-98, 63 S. Ct. 109, 110-11, 87 L. Ed. 106, 110-11 (1942).
Instead, so long as the federal estate taxes are paid,
state law governs the distribution of the remainder of the
estate and the “ultimate thrust of the tax.” Ibid.[fn15]
Therefore, absent congressional enactments to the contrary,
state law governs the allocation of the tax burden. Ibid.
However, where Congress has spoken, such as with the
marital deduction, federal law controls. McAleer v.
Jernigan, 804 F.2d 1231, 1233 (11th Cir. 1986) (“in the
absence of congressional enactments to the contrary, state
law governs the allocation of the burden of taxes as to
property that is part of the estate [but] where Congress
has spoken . . . federal law governs”).[fn16]
The Internal Revenue Code allows a marital deduction for
the value of property transferred to a surviving spouse. 26
U.S.C.A. § 2056. The marital deduction permits a
testator to provide for his or her spouse, up to the limits
set forth in the federal statute, without incurring federal
tax liability therefor. Gesner v. Roberts, 48 N.J. 379, 381
(1967).
The Economic Recovery Tax Act of 1981 extended the marital
deduction to property in QTIP trusts. 26 U.S.C.A. §
2056(b) (7)(B). In re Will of Adair, 149 N.J. 591, 597-98
(1997). A QTIP trust provides the surviving spouse with
“ongoing income support for the surviving spouse while
retaining the corpus for the children or other
beneficiaries.” Ibid. The election of QTIP treatment,
therefore, allows the decedent to control the property’s
ultimate disposition after the surviving spouse’s death and
obtain an estate tax benefit. Id. at 597; In re Estate of
Branigan, 129 N.J. 324, 328 (1992).
26 U.S.C.A. § 2056(b)(7)(B)(i) defines QTIP property
as property (1) that passes “from the decedent,” (2) “in
which the surviving spouse has a qualifying income interest
for life,” and (3) “to which an election” was made at the
time of payment of the decedent’s estate taxes. The value
of the QTIP property that passes to the surviving spouse is
deducted from the decedent’s gross estate, and no estate
taxes are paid on it upon the death of the first spouse. 26
U.S.C.A. § 2056(a); Adair, supra, 149 N.J. at 598.
Such was the case here. As a result, the tax owed on the
QTIP property was deferred until the death of Samuel, the
surviving spouse, at which time the QTIP property was
included in his gross estate pursuant to 26 U.S.C.A.
§ 2044. See Adair, supra, 149 N.J. at 598.
Under 26 U.S.C.A. § 2207A(a)(1), if the surviving
spouse’s gross estate includes any QTIP property, the
executor or administrator may recover the amount of estate
tax attributable to the inclusion of that property from a
“person receiving the property.” Specifically, 26 U.S.C.A.
§ 2207A(a)(1) provides that the amount recoverable is
the portion of the tax resulting from the inclusion of the
QTIP in the gross estate, that is the amount by which the
total estate tax exceeds the total estate tax that would
have been payable if the QTIP had not been included. The
right of recovery, however, does not apply if the decedent
otherwise directs by will. 26 U.S.C.A. § 2207A(a)(2);
see Adair, supra, 149 N.J. at 594-95 (holding that federal
estate tax was not at issue where predeceased spouse’s will
directed his trustees to pay any federal taxes due on the
QTIP trust from the trust principal before distributing the
balance to decedent’s children, but did not mention the
payment of state death taxes).
However, a decedent waives the right of the estate to
recover from the person receiving the QTIP property a
portion of the estate tax attributable to its inclusion if
the will “specifically indicates an intent to waive any
right of recovery.” 26 U.S.C.A. 2207A(a)(2).[fn17]
As the trial court observed, Samuel’s 2003 will (prepared
by a new scrivener) suggested that he wanted to waive the
right of recovery. However, as the judge also recognized,
the Settlement Agreement subsequently provided otherwise.
Specifically, the interested parties all agreed that the
QTIP trusts would pay Samuel’s estate the federal and state
taxes attributable to inclusion of the QTIP trusts in
Samuel’s gross estate. The court approved the Settlement
Agreement, thereby conferring authority upon the executor
and trustees to comply with its terms.
We agree with appellant that federal law controls the
federal taxation of estates, and that the estate is not
entitled to recover from the charitable beneficiaries their
pro rata share of the federal estate taxes. The applicable
Treasury regulation provides that “[t]here is no right of
recovery from any person for the property received by that
person for which a deduction was allowed from the gross
estate if no tax is attributable to that property.” 26
C.F.R. 20.2207A-1(a)(1). That regulation is consistent with
congressional intent to provide a special rule for
transfers of interests in property to a spouse and a
qualifying charity for which there is no federal estate tax
liability.
There can be no dispute that 26 U.S.C.A. § 2207A
applies to the question before us, and preempts state law
regarding the payment of federal estate taxes attributable
to QTIP property. See Cleveland v. Compass Bank, 652 So. 2d
1134, 1137-38 (Ala. 1994) (holding 26 U.S.C.A. §
2207A preempted state law but made no specific provision
for the apportionment of state estate taxes). Because 26
C.F.R. 20.2207A-1 implements the statute and excludes the
right of recovery for property for which a deduction for
estate tax purposes was allowed, the charitable
beneficiaries cannot be required to reimburse Samuel’s
estate for their proportionate share of the federal estate
taxes attributable to the QTIP trusts. As the trial judge
recognized, charitable bequests are “exempt from taxation
since the estate will take a charitable deduction following
the distribution of the property.” As a result, the federal
statute and regulation preempt state law with respect to
the payment of federal estate taxes, and the charitable
beneficiaries cannot be assessed their proportioned share
for federal estate tax purposes.
We nevertheless affirm the judgment. While the trial
court’s analysis of probable intent may not have been
relevant to the issue of federal estate taxation
attributable to the charitable beneficiaries of the QTIP
trusts, construction of a will is a matter of state law, and
state law governs the allocation of the tax burden in the
absence of congressional intent to the contrary. See Riggs,
supra, 317 U.S. at 98-99; McAleer, supra, 804 F.2d at 1233;
Cleveland, supra, 652 So.2d at 1137.
To that end, in interpreting a will, courts in this State
endeavor to “ascertain the intent of the testator.” In re
Estate of Payne, 186 N.J. 324, 335 (2006). The doctrine of
probable intent is long established in New Jersey’s
jurisprudence. In re Estate of Branigan, supra, 129 N.J. at
331.[fn18] As Justice Wallace has recently stated:
In interpreting a will, our aim is to ascertain the
intent of the testator. “[W]hen we say we are determining
the testator’s intent, we mean his probable intent.”
Fidelity Union Trust Co. v. Robert, 36 N.J. 561, 564, 178
A.2d 185 (1962) (citation omitted). We continue to adhere
to the view of the doctrine of probable intent expressed
in Fidelity Union. In that case, the Court stated that in
determining the testator’s subjective intent, “courts will
give primary emphasis to his dominant plan and purpose as
they appear from the entirety of his will when read and
considered in the light of the surrounding facts and
circumstances.” Id. at 564-65, 178 A.2d 185. The trial
court should “ascribe to the testator ‘those impulses
which are common to human nature and . . . construe the
will so as to effectuate those impulses.'” Id. at 565, 178
A.2d (citation omitted). More recently, this Court
emphasized that “[c]ourts are enjoined to ‘strain’ toward
effectuating the testator’s probable intent ‘to
accomplish what he would have done had he envisioned the
present inquiry.'” In re Estate of Branigan, 129 N.J. 324,
332, 609 A.2d 431 (1992) (citation omitted).
The trial court is not “limited simply to searching out
the probable meaning intended by the words and phrases in
the will.” Engle v. Siegel, 74 N.J. 287, 291, 377 A.2d 892
(1977). Extrinsic evidence may “furnish[] information
regarding the circumstances surrounding the testator [and]
should be admitted to aid in ascertaining [the testator’s]
probable intent under the will.” Wilson v. Flowers, 58
N.J. 250, 260, 277 A.2d 199 (1971). To be sure, the
testator’s own expressions of his or her intent are highly
relevant. Id. at 262-63, 277 A.2d 199. Once the evidence
establishes the probable intent of the testator, “the
court may not refuse to effectuate that intent by
indulging in a merely literal reading of the instrument.”
Id. at 260, 277 A.2d 199.
[In re Estate of Payne, 186 N.J. 324, 335 (2006).]
See also In re Estate of Ericson, 74 N.J. 300, 310 (1977)
(considering impact of trial testimony of attorney who
prepared the will in question and the trust officer to whom
the testator expressed his wishes); Danelczyk v. Tynek, 260
N.J. Super. 426, 430-31 (App.Div. 1992) (holding that the
trial court properly admitted extrinsic evidence, including
testimony of lawyer who drafted the will and the testator’s
close friend, to explain testator’s will).
Here the charities present no contest to the certification
of the testatrix’s attorney and accountant who were deeply
involved in Minerva’s estate planning and family affairs at
the time her will was executed. As the trial court noted,
neither fiduciary appears to have a motive, “stake” or
personal interest which might compel us to ignore their
certifications. Further, appellant offers no contrary proofs
or reason to disregard them.
The certifications of Sussman and Merkel provide adequate
proof that Minerva intended to provide Betty and her trust
with a specific legacy following Samuel’s death, and that
the specific legacies were to be fully satisfied, with all
debts, expenses, and liabilities including taxes, paid
before the charities received the balance. Such direct
statements of intent by Minerva’s scrivener and co-trustee
were properly considered by the trial court, see In re
Estate of Ericson, supra, 74 N.J. at 310; Wilson, supra, 58
N.J. at 263-64, and are consistent with a mother’s natural
inclination to provide for her children and grandchildren.
See In re Estate of Ericson, supra, 74 N.J. at 306.[fn19]
As noted, the trial judge thoroughly detailed Minerva’s
intent by reference to the certifications of her
attorney-scrivener and her accountant, the latter of whom
was an executor and trustee under her will. The attorney
“met and spoke with Minerva on numerous occasions between
1992 and her death in 1999 to discuss various issues related
to her estate plan.” He certified that the charities were
to receive the balance of the estate only after the
specific legacies to Betty and her trust were “paid in
full” and the “debts, expenses and liabilities, including
taxes” were paid. Similarly, her accountant Merker
certified that Betty considered the charities as “an
afterthought,” because her “monies were to be reserved for
her blood kin, Betty MacDonald and her children.”[fn20]
We interpret the trial judge’s opinion to require
modification of Minerva’s will to provide the charities
with a lesser share of the residuary estate if federal
estate taxes could not include apportionment of their
share. Stated differently, the record demonstrates that, as
a matter of the testatrix’s probable intent, Betty
MacDonald and her family would have received a greater
share of the estate (whether or not their legacies were
part of the residuary estate) if federal estate taxes were
to be paid exclusively from their shares. Consistent with
the well-established doctrine of “probable intent,” see In
re Estate of Branigan, supra, 129 N.J. at 336, permitting
reformation of a will “to modify the existing provision of
[QTIP] trust funds in order to derive maximum benefits
under the federal estate tax laws”); In re Estate of
Ericson, supra, 74 N.J. at 310 (construing will to maximize
marital deduction and minimize estate taxation), we affirm
the judgment regarding federal estate taxation based upon a
construction of the will which modifies the residuary
estate to provide a greater bequest to Betty MacDonald and
her family in order to provide for payment of the federal
estate tax liability or for the recovery of federal taxes
attributable to the QTIP trusts.
III.
Appellant contends that the trial court also erred by
failing to exonerate the charitable beneficiaries of the
QTIP trusts from the apportionment of New Jersey estate
taxes. See N.J.S.A. 54:38-1 to-16.[fn21] Essentially, the
appellant argues that the court erred in applying the
doctrine of probable intent to the construction of
Minerva’s will and in concluding from the testamentary
document itself and extrinsic evidence that Minerva
intended first to create a specific legacy for Betty and
her family, and then to leave the residuary to the
charitable beneficiaries after the payment of taxes. We have
already noted that the Sussman and Merker certifications
provided uncontested proof which was sufficient to
demonstrate Minerva’s testamentary intent and that
appellant did not provide enough to warrant an evidentiary
contest on that issue. See Brill v. Guardian Life Ins. Co.,
142 N.J. 520, 532 (1995). See also, e.g., In re Estate of
Ericson, supra, 74 N.J. at 309-10; Danelczyk, supra, 260
N.J. Super. at 431-32 (construing intent based on extrinsic
evidence of attorney who drafted will).
Appellant nevertheless argues that New Jersey law
exonerates charitable beneficiaries from state taxation in
order to maximize the tax advantage for the estate. It
relies on In re Estate of Rankin, 169 N.J. Super. 317,
326-28 (App.Div. 1979), in which we held that a charitable
beneficiary did not have to contribute its share of the
residuary estate to the payment of federal estate taxes and
New Jersey transfer inheritance taxes. Among other things,
we found that “where a will is silent,” and there was no
extrinsic evidence of contrary intent, “public policy
suggests that a gift which, because deductible, lessens
taxes on the estate as a whole, should not be made to bear
any part of the tax attributable to other tax generating
parts of the estate.” Id. at 327. We further found that
this policy was consistent with the presumption under New
Jersey law that a testator intended the maximum tax
advantage for his estate. Ibid. However, as the trial judge
here noted, we also expressly stated that we would indulge
that equity “only in the absence of contrary testamentary
intent derived from the will or from extrinsic evidence of
it.” Id. at 328. Because both Minerva’s will and the
certifications refute the presumption that Minerva intended
the maximum tax advantage for her estate at the expense of
her family, the charitable beneficiaries cannot be
exonerated from paying their share of the New Jersey tax.
Accordingly, we affirm, substantially for the reasons
stated by the trial judge and the reasons given by us to
sustain the judgment regarding apportionment of federal
estate taxes, the judgment regarding the New Jersey state
tax as well.
Affirmed as to state taxes and modified as to rationale
with respect to federal taxes, and remanded for further
proceedings consistent with this opinion.
[fn1] The August 26, 2005 order incorporated a settlement
agreement of March 28, 2005 and a “Final Judgment” of May
16, 2005. We use the term “appellant” for the trustees of
Stevens Institute to avoid any confusion with the trustees
under the will of Minerva Lee.
[fn2] These uncontested facts are embodied in the
certification of Alan S. Sussman, Esq. who represented
Minerva and Samuel, and who prepared their wills and
codicils as well as the papers incident to Betty’s
adoption.
[fn3] Sam executed his Last Will and Testament on the same
day.
[fn4] Article Twelfth provided:
The Spouse’s Part shall be equal in value to the maximum
marital deduction allowable to my estate under federal
estate tax law. Notwithstanding the foregoing, if after
the allocation to the Spouse’s Part as above provided,
the federal estate tax imposed with respect to my estate
would be less than the amount of available or allowable
“credits” as hereinafter defined, then the Spouse’s Part
shall be reduced, and the Family Part correspondingly
increased, by such amount of property as would produce a
federal estate tax equal (or as nearly equal as
practicable) to such credits, so that, in all events, the
Family Part will consist of the largest amount of property
possible without the imposition of any federal estate tax.
For the purposes of this definition, if the use of all
credits against federal gift and estate taxes available to
my estate would increase the amount of any tax payable to
any state on account of my death, then I direct that such
credits be used only to the extent they do not increase
such state death taxes.
The term “credits” shall mean the aggregate amount of all
credits available or allowable to my estate tax, credit
for state death taxes, credit for gift taxes, credit for
taxes on prior transfers and credit for foreign death
taxes.
[fn5] The trial judge seems to conclude that only the third
paragraph of Article Fourth constituted the residuary
estate to be distributed if any estate remains following
payment of the specific legacies to Betty and her family.
[fn6] A gross estate includes the value of “all property,
real or personal, tangible or intangible,” at the time of a
decedent’s death. 26 U.S.C.A. § 2031(a).
[fn7] The parties refer to the Internal Revenue Code as
“I.R.C.,” and we refer thereto and to Title 26 of U.S.C.A.
interchangeably.
[fn8] Because several pages of Samuel’s 2003 will are
illegible, that statement is taken from the court’s
opinion. In any event, the provisions of the 2003 will are
not in dispute or relevant, in light of the settlement
following Betty’s caveat which was based on claims of undue
influence and lack of testamentary capacity.
[fn9] The executors, trustees and beneficiaries under
Samuel’s 1998 will were parties to the settlement. The
settlement agreement addressed specifically identified
issues “regarding the QTIP Trusts’ obligation to pay
federal and New Jersey estate taxes attributable to
inclusion of the QTIP Trusts in Samuel’s gross estate for
federal estate tax purposes” and how taxes were to “be
charged against the interests of the remainder of the
beneficiaries of the QTIP Trusts” and how “the QTIP Trusts
and Family Part Trust remaining at Samuel’s death, after
the payment by the QTIP Trusts of those federal and New
Jersey estate taxes, shall be distributed among the
remainder beneficiaries of those trusts. . . . There is no
issue raised concerning the assessment or amount of the
taxes.
[fn10] As of June 22, 2005, the balance of the QTIP trusts
was $1,147,725 and the balance of the Family Trust was
$213,495. The Family Part Trust was not taxable at
Minerva’s or Samuel’s death. According to the probate
judge, under the terms of the Settlement Agreement, the
QTIP trusts were to contribute “approximately $550,000” to
Samuel’s estate, thereby leaving approximately $597,725 in
the QTIP trusts and $213,495 in the Family Part Trust. The
probate judge “presume[d],” without dispute, that the
$550,000 “included . . . the estate taxes for which the
QTIP Trusts are liable.”
[fn11] No issue is raised before us by virtue of the fact
Merker and Betty MacDonald witnessed Minerva’s will and
codicil.
[fn12] The court noted that if the charities “were granted
an exemption from the taxes being assessed against their
share of the distribution from the QTIP trusts[,] the
cumulative distribution to Betty and her family would be
reduced from $765,000.00 to $215,000.00, while the
Charities’ distribution would be raised from approximately
$46,220.00 to $596,220.00, a nearly thirteen-fold
increase.”
[fn13] The regulation provides, in part, that “[t]here is no
right of recovery from any person for the property received
by that person for which a deduction was allowed from the
gross estate if no tax is attributable to that property.”
[fn14] The parties do not dispute the controlling statute
and regulations or argue that different dates control their
application. We employ the cited statute and regulations
for purposes of this opinion. However, while the trial
court and parties refer to the Internal Revenue Code
(“I.R.C.”), we refer thereto and to Title 26 of the United
States Code inter-changeably.
[fn15] As the trial judge noted, in New Jersey, N.J.S.A.
3B:24-4 controls the apportionment of federal and state tax
liability. That statute provides in relevant part, that
“[i]n the absence of directions to the contrary,” the
estate tax must be apportioned pro rata among the
beneficiaries. N.J.S.A. 3B:24-4(a). We find that statute is
not dispositive with respect to federal estate taxation of
QTIP trusts because federal law controls that subject.
[fn16] In McAleer, because “Congress [had] spoken” on the
subject, the IRC controlled the allocation of taxes for the
portion of the estate tax attributable to the inclusion of
life insurance proceeds in the gross estate.
[fn17] As already noted, the parties do not contest or
dispute the statutes or regulations which control the
disposition of the case or point to any dispositive
amendments between the dates of the death of either Minerva
or Samuel. See footnote 14. There is no challenge to the
federal regulation, and there could be none in this forum.
[fn18] The statute governing a testator’s intention at the
time the 1998 wills were executed was codified in N.J.S.A.
3B:3-33.
[fn19] Appellant contends that the court’s reliance on the
certifications was improper because they did not meet the
“clear and convincing” standard of proof required by New
Jersey’s Dead Man Statute, N.J.S.A. 2A:81-2. The trial
court concluded that the statute did not apply, but even if
it did, the court found that the “clear and convincing”
standard of proof was met.
[fn20] Appellant points to a provision in Article Fourth of
Minerva’s will, stating that the university is to use the
income derived from her gift “to provide scholarships to no
fewer than five (5) students each year” as evidencing an
intent to give more than one-half of the balance left to
Stevens. However, the reference is not to full scholarships,
and given the lack of contest by the charities to the
certifications of Merker and Sussman, there can be no
reasonable dispute as to Minerva’s intent, and thus no need
for an evidentiary hearing.
[fn21] See generally, Subtitle 5 (chapters 33-37) of Title
54 relating to Transfer Inheritance and Estate Taxes. While
this case involves no issue regarding the assessment or
amount of estate taxes, see Overhand v. Director, Div. of
Taxation, 22 N.J. Tax 55 (2005), rev’d 388 N.J. Super. 239
(App.Div. 2006), for a thorough discussion of the
relationship between federal and state estate taxes and the
retroactive impact of amendments to state law in light of
amendments to federal law.