Barillet v. Kelly

• Decision Date: 18 January 1944
• Docket Number: No. 258.,258.
• Citation: 131 N.J.L. 140,35 A.2d 457
• Parties: BARILLET et al. v. KELLY, State Tax Commissioner, et al.
• Court: New Jersey Supreme Court

131 N.J.L. 140

35 A.2d 457

BARILLET et al.

v.KELLY, State Tax Commissioner, et al.

No. 258.

Supreme Court of New Jersey.

Jan. 18, 1944.

Proceeding by Ora E. Barillet and others for a writ of certiorari to review an order of the Prerogative Court affirming a holding by William D. Kelly, State Tax Commissioner, that a cash gift to named prosecutor by her husband before his death was taxable as a gift made in contemplation of death or intended to take effect in possession or enjoyment at or after donor's death.

Writ dismissed.

October term, 1943, before PARKER, HEHER, and PERSKIE, JJ.

Endicott & Endicott an Allen B. Endicott, Jr., all of Atlantic City (Daniel J. Dowling, of Atlantic City, of counsel), for prosecutors.

David T. Wilentz, Atty. Gen. (William A. Moore, of Trenton, of counsel), for respondents.

PERSKIE, Justice.

This is an inheritance tax case. The question for decision on the fact of this case is whether the transfer of a gift inter vivos of $85,000 in cash made by decedent to his wife, within two years of his death, was taxable as a gift made in contemplation of death or as gift intended to take effect in possession or enjoyment at or after such death within the meaning of the then applicable statute. P.L. 1909, c. 228, sec. 1, Third, p. 325, as amended by P.L. 1935, c. 90, sec. 1, Third, p. 264, now R.S. 54:34-1, subd. c, N.J.S.A.

P.L. 1909, supra, as amended by P.L. 1935, supra, approved March 25, 1935, and made effective immediately, imposes a state tax, with exceptions not here involved, ‘* * * upon the transfer of any property real or personal of the value of five hundred dollars, ($500.00) or over, of any interest therein or income therefrom, in trust or otherwise, to persons or * * * in the following cases: * * * Third. ‘When the transfer is of property made by a resident * * * by deed * * * or gift made in contemplation of the death of the grantor * * * or donor, or intended to take effect in possession or enjoyment at or after such death. Every transfer by deed * * * or gift, made within two years prior to the death of the grantor, * * * or donor, of a material part of his estate, or in the nature of a final disposition or distribution thereof and without an adequate valuable consideration, shall in the absence of proof to the contrary, be deemed to have been made in contemplation of death within the meaning of this section.’

Decedent transferred by gift the sum of $85,000 in cash to his wife (now Ora E. Barillet) on December 10, 1935. He died on November 18, 1936. The State Tax Commissioner held that the gift was taxable within the meaning of the statute of 1935, supra, and levied the tax thereon accordingly. On appeal, the Prerogative Court affirmed the holding by the State Tax Commissioner. On application of prosecutors, a single justice allowed a writ of certiorari to review the propriety of the stated holdings.

1. We too think that the gift was correctly held to be taxable within the meaning of the statute. The dispositive test of the taxability of a gift inter vivos, within the meaning of the statute, is the ‘motive’ of the donor underlying the gift. Moore v. Martin, 125 N.J.L. 189, 14 A.2d 482. If the ‘determinative motive’ of the donor was ‘of the sort which leads to a testamentary disposition’ of a material part of his estate, if the ‘generating thought of death’ as distinguished from ‘purposes associated with life’ was his ‘impelling’ or ‘controlling’ motive which induced the disposition of the property, if the gift was in fact made as a ‘substitute for testamentary disposition’ ( Perry v. Martin, 125 N.J.L. 46, 14 A.2d 266; Central Hanover Bank & Trust Co. v. Martin, 129 N.J.L. 127, 28 A.2d 174, affirmed Central Hanover Bank & Trust Co. v. Kelly, 319 U.S. 94, 63 S.Ct. 945, 87 L.Ed. 1282; cf. Squier v. Martin, 131 N.J.Eq. 263, 24 A.2d 865, and cases therein collated), or if the gift was made ‘for the purpose of an evasion of transfer tax liability by the donee’ (MacGregor v. Martin, 126 N.J.L. 492, 497, 20 A.2d 427, 430), then the gift was correctly held to be taxable, otherwise it was not taxable.

The application vel non, however, of the stated principles is necessarily controlled by the particular facts of each case that is under consideration and determination. Scheider v. Martin, 124 N.J.L. 567, 12 A.2d 678; MacGregor v. Martin, supra, 126 N.J.L., page 496, 20 A.2d 427.

Thus we turn to the facts. Decedent, hereafter referred to as donor, was born on February 8, 1865. At the time of the gift (December 10, 1935), he lacked about two months of being 71 years old; at the time of his death (November 18, 1936) he lacked about two and two-thirds months of being 72 years old, and the gift was made within one year of his death.

Donor had been married to his wife for about twenty years and they lived in a beach front hotel in Atlantic City, N. J. He left a gross estate of $394,912.09. The taxability of this sum is not in issue. To this sum, however, the State Tax Commissioner added the cash gift of $85,000 (originally reported as $85,317) to donor's gross taxable estate. The taxability of this additional sum is in dispute.

It is conceded that the donor was in good health not only at the time of the gift to his wife but also up and until five days prior to his death when he sustained fatal injuries as the result of an automobile accident. Prior to his death he had retired from active business and lived his life accordingly. He traveled with his wife, during the last ten years of his life, to Europe where they lived six months of the year. While in Atlantic City, where he spent the remaining six months of each year, he took frequent walk on the Boardwalk, frequented his club in Philadelphia, drove his automobile several times weekly between Philadelphia and Atlantic City, a few times a year between Baltimore and Atlantic City, and twice during the year preceding his death between New York and Atlantic City. Only two hours before his fatal accident, donor told his wife to purchase a home in Baltimore where she and he could retire ‘in our old age to a home in the country.’ The wife testified that donor ‘always claimed he was going to live to be 93’ because ‘his family had all lived to be of very old age.’ Conditions of health and age of donor are material but not necessarily determinative factors. But whether donor was or was not ‘in life's late afternoon’ (cf. Voorhees v. Kelly, 130 N.J.L. 61, 64, 31 A.2d 404, 405), we are entirely in accord with the late learned Vice Ordinary Buchanan ¹ that the proofs negative a finding that the ‘impelling’ cause of the donor of the gift was in contemplation of ‘actual imminence’ or ‘probability’ of death in the not distant future.

2. The gift having been made within one year of the death of the donor, prosecutors were obliged to sustain the ‘burden of establishing’ (Perry v. Martin, supra, 125 N.J.L. page 51, 14 A.2d page 269) that the gift was not otherwise made ‘in contemplation of death’ within the meaning of the statute. We think that prosecutors have failed to discharge their burden of establishing that the gift was not intended to take effect in possession or enjoyment at or after donor's death.

Financially, the donor was a man of relative affluence. At the ‘peak market’ of 1929 his stocks and holdings had a probable value of about ‘one million dollars.’ At the nadir point of the 1932 market, his stocks had ‘depreciated, probably 40 to 45%.’ He was concededly ‘afraid’ of the further decline in the value of his securities because of the resultant consequences of ‘labor’ disturbances and of ‘inflationary’ trends. After consultation and consideration how best to take care of what he had left he became ‘annuity’ minded.

In 1933 he had purchased four life annuity policies (non-participating) for a consideration of the single payment of $26,231.25 for each policy. By the terms of each policy the insurer agreed to pay donor, as annuitant, during his lifetime, the sum of $3,000 annually, in equal monthly installments of $250.

In 1935...