This is a status report provided by the New Jersey State Bar Association on recently passed and pending legislation, regulations, gubernatorial nominations and/or appointments of interest to lawyers, as well as the involvement of the NJSBA as amicus in appellate court matters. To learn more, visit njsba.com.

NJSBA urges Supreme Court cert to clarify critical estate planning decisions

The New Jersey State Bar Association urged the Supreme Court to grant certification to review the propriety of the treatment of inheritance tax transfers made as part of an estate plan. The Appellate Division upheld a trial court holding that imposed an inheritance tax on the entire value of a life estate upon the death of one party's interest in a tenancy by the entirety in the matter of Estate of Mary Van Riper v. NJ Division of Taxation. In its amicus curiae filing earlier this year, the association argued that this treatment was improper and against the common practice of trust and estate attorneys, who follow New Jersey's own guidelines on the issue as well as the Uniform Trust Code in assigning a 50 percent tax.

“In affirming the Tax Court's decision to assess an inheritance tax against a surviving spouse's estate of 100 percent of the value of property transferred to a trust held as tenants by the entirety, the Appellate Division opinion stands for the proposition that such property can be subject to a tax on 200 percent of the property—100 percent upon one spouse's death and 100 percent upon the surviving spouse's death,” said the NJSBA in its amicus brief filed earlier this month. “The NJSBA contends that such a result is unintended, and will confound taxpayers and their advisors far into the future.” The brief is authored by NJSBA Real Property, Trust and Estate Law Section members Andrew J. DeMaio, Glenn A. Henkel, Jill Lebowitz and Heather G. Suarez. DeMaio argued the matter before the Appellate Division earlier this year.

The matter emanates from the creation of an irrevocable trust by the Van Ripers, to which they transferred all of their interests in their residence. Later that same month, Walter Van Riper died, and his 50 percent ownership interest was reported on a New Jersey inheritance tax return. All of the assets owned individually by him and jointly with his wife, Mary, were also reported on the return. Mary died six years later, and the assets of the trust passed, pursuant to the terms of the trust, to her niece. When the estate tax return was completed, the trustee deemed the trust not taxable and filed the taxes showing a zero tax liability. The Division of Taxation disagreed, deeming the full date-of-death value of the residence as taxable.

The Appellate Division remained unconvinced that the transfer of property to a trust severs a tenancy by the entirety, as argued by amici, which included the NJSBA and the New Jersey Land Title Association. “When Walter and Mary transferred the property to the trust, they owned the property as tenants by the entirety. Together, they made a transfer intended to take effect at or upon Walter or Mary's death, whichever was the last to occur,” said the Appellate Division. “Because Mary had an undivided ownership interest in the property, and the transfer of that interest took effect upon her death, the Division properly included the full value of the property in Mary's taxable estate for inheritance transfer tax purposes.”

The Appellate Division decision was selected for publication and, therefore, constitutes binding precedent. As such, the association argues that the decision reverses an established principle of law, but through incorrectly applied legal principles. As such, the matter is pertinent and begs the Supreme Court's attention to settle questions raised by the Appellate Division's decision, said the association in its brief.