Law Lessons from Est. of Claire Schinestuhl, etc. v. Director, Division of Taxation, __ N.J. Tax __ (Tax 2012); DOCKET NO. 007133-2011; February 2, 2012:

Pursuant to the New Jersey Transfer Inheritance Tax Act (N.J.S.A. 54:33-1 et seq.) (“Act”), inheritance tax is imposed ”upon the right of succession to real and personal property transferred by a decedent in specified cases. The tax is levied upon the transferee, and the amount thereof depends upon the value of the property transferred and the transferee’s relationship to decedent.” Gould v. Director, Div. of Taxation, 2 N.J. Tax 316, 319-320 (Tax 1981) (citations omitted). Unless otherwise provided by statute, the tax is due and payable at the decedent’s death. N.J.S.A. 54:35-1.

In this connection, the term ”transfer” means the ”passing of property, or any interest therein, in possession or enjoyment, present or future, by distribution by statute, descent, devise, bequest, grant, deed, bargain, sale or gift.” N.J.SA 54:33-1; N.JAC. 18:26-1.1. The term ”property” means ”the interest of the testator . . . passing or transferred to the individual or specific legatee” which is not exempt from taxation. N.J.S.A. 54:33-1. A “transfer occurs at the date of death and the value of the property is determined on that date.” Estate of Kollinger v. Director. Div. of Taxation, 4 N.J. Tax 652, 655 (Tax 1982).

The tax is “computed upon the clear market value of the property transferred.” N.J.S.A. 54:34-5. Thus, the Director’s regulations provide that “[a]ll the real, personal property, tangible and intangible subject to the [tax] is appraised according to its clear market value on the date of decedent’s death.” N.J.A.C. 18:26-8.10. These regulations further clarify that the tax on the clear market value is “only upon that portion in excess of the exemptions and deductions allowable under the law on the date of the transferor’s death at the rates then in effect.” N.J.A.C. 18:26-2.3. In tum, “clear market value” is defined as “the market value of any property included in any transfer, less any deductions allowable under the law.” N.J.A.C. 18:26-1.1.

Ancillary estate proceedings in another judicial forum do not overcome the Act’s clear mandate that property is deemed transferred, and tax is deemed imposed, as of the date of death of the decedent. See Offv. Director, Div. of Taxation, 16 N.J. Tax 157, 171 (Tax 1996) (“[a]s between the administration of an estate and the taxation of an estate, the concem … is with the taxation of an estate and hence with N.J.S.A. 54:34-5″); Donovan v. Baldwin, Director, Div. of Taxation, 10 N.J. Tax 224, 226 (Tax 1988) (transfers of a decedent’s estate by post-death agreements, whether or not judicially sanctioned, does not overcome the principle that the Act taxes the transfers as originally contained in the decedent’s will); N.J.A.C. 18:26-11 (where distribution under a will is “otherwise than as provided in the will” the tax is “nevertheless computed in accordance with the tenns of the will admitted to probate”). ^[1]

Indeed, even the law goveming probate proceedings specifies that property devised by a Will devolves to the beneficiary immediately upon death of the decedent. See N.J.S.A. 3B:1-3 (“[ u jpon the death of an individual, his real and personal property devolves to the persons to whom it is devised by his will ... ").

In Estate of Franko v. Director, Div. of Taxation, 23 N.J. Tax 1, 4-5 (Tax 2006), this court interpreted the term "contingent interest" as one where "no present interest exists, and that whether such interest or right will ever exist depends on a future uncertain event," and "[i]f the person who is given a future interest is ( a) in being and (b) ascertained and (c) the gift is not made contingent upon an uncertain future event, the interest is vested in the beneficiary, whether it be of realty or personalty; failing any of these three circumstances, the interest is contingent.”

The Legislature has provided for the taxability of contingent interests in N.J.S.A. 54:36-3. This statute provides that “[w]hen an instrument creates an executory devise, or an estate in expectancy of any kind or character which is contingent or defeasible” then the property “shall be appraised immediately at its clear market value.” However, the taxes due are “due and payable … within two months after the person entitled to the property shall come into the enjoyment, seizin or possession thereof …. ” N.J.S.A. 54:36-5. The language of these statues makes clear that our Legislature deemed an interest contingent only when the Will itself makes a conditional bequest. It did not deem the devolution of any property as a contingent interest simply because of the time-gap necessarily involved in the probate of a Will.

NOTE: This Blog/Blawg, NJ Family Issues, is managed by Paul G. Kostro, Esq., an attorney/lawyer/mediator in Linden, Union County, New Jersey.

1. Cf. N.J.A.C. 18:26-2.12 (“[i]f a transferee under a will or by operation of law disclaims or renounces his rights thereunder, or aoy portion thereof, the disclaimer or renunciation is given effect io computing the tax agaiost the estate … ” if a timely document io this regard is filed). [↩]