Estate of Cole, Matter of
| Decision Date | 18 April 1984 |
| Citation | 200 N.J.Super. 396,491 A.2d 770 |
| Parties | In the Matter of the ESTATE OF Nathaniel B. COLE. |
| Court | New Jersey Superior Court |
This suit focuses on New Jersey's surviving spouse's elective share statute. N.J.S.A. 3B:8-1 et seq. The issues include the proper date and manner of valuation of the estate and the elective share, the disposition of realized and unrealized gains and losses during administration, the right of the surviving spouse to a portion of estate income before distribution, and the assessability of the elective share for estate and inheritance taxes.
The decedent died in 1981, leaving two adult daughters, a widow whom he married in the months preceding his death, and a sizable estate. His will gave to the widow one half of his tangible personal goods, a home in Metuchen and 10% of the shares in a real estate holding company. It expressly disinherited his former wife and created a residuary trust for each of his daughters. His disposition scheme has generated a good deal of litigation among the beneficiaries.
Three suits were filed and two were eventually consolidated. One of them was filed here by a daughter of the decedent against her sister, her father's estate and four family-owned business entities. She charged mismanagement and oppression and sought dissolution of the entities. On the estate's motion, the widow was joined as a defendant because the will gave her shares in one of the entities. She was also a potential part-owner of other estate assets by reason of her statutory elective rights.
Meanwhile, an attack was made in the Probate Division on the validity of the decedent's Will and of his second marriage. The Probate Division admitted the will and upheld the marriage. Later, the widow timely filed a complaint by which she elected to take her statutory share of the estate under N.J.S.A. 3B:8-1 et seq. That matter was then consolidated into the business-entities suit that was already pending here. The latter suit was subsequently settled, leaving for decision the large number of issues raised respecting the widow's elective share.
Until 1980, New Jersey remained one of the states without a statute providing an elective share for a surviving spouse. We still relied on a statutory version of the ancient rights of dower and curtesy. Because they created rights in real property only, dower and curtesy did not touch the principal forms of modern wealth and were easily defeated by the creation of corporations to hold real estate. To remedy those defects and better protect the surviving spouse, the Legislature enacted the elective share statute, originally N.J.S.A. 3A:38A-1 et seq. See Horn, Residential Real Estate Law and Practice in New Jersey, Sec. 2.2(b)(ii) (1983 Supp.) The statute was recodified without material change in N.J.S.A. 3B:8-1 et seq. (All further reference will be to the later codification.)
Much of our statute follows the Uniform Probate Code. Sections 1 and 2 say it applies to the post-May 28, 1980 estates of New Jersey domiciliaries and to the surviving spouses with whom they were cohabiting at the time of death. The spouse is given a choice. By doing nothing, she 1 may choose to take what the decedent left her when he died. However, she may elect to take one third of his "augmented estate." The augmented estate is the probate estate, less funeral and administrative expenses and provable claims plus the value of certain inter-vivos and non-probate transfers to others, plus the value of certain inter-vivos and non-probate transfers to the surviving spouse, including life insurance proceeds and pensions payable to the spouse but not to others. N.J.S.A. 3B:8-3, 6, 7. The augmented estate includes out-of-state real property to the same extent as it would be included if it were located in New Jersey. See N.J.S.A. 3B:8-2.
The right of election may be waived by written agreement before or during marriage. N.J.S.A. 3B:8-10. Absent such waiver, the election is made by filing a Superior Court complaint within six months (which may be extended by the court) of the appointment of an estate personal representative. N.J.S.A. 3B:8-12. The court, after appropriate proceedings, fixes the value of the elective share and the manner of its satisfaction from the augmented estate and the persons liable for contribution. N.J.S.A. 3B:8-18 and 19. Those are persons who are already in possession of assets includible in the augmented estate. They are required to participate in the payment to the electing spouse.
It is notable that the elective share is not a fraction of the residuary estate or the probate estate but of the augmented estate, which includes other equivalents of testamentary transfers. Equally important, the burden of satisfying the spouse falls on both the probate estate and the recipients of transfers includible in the augmented estate.
It is also significant that the surviving spouse is entitled to one third of the augmented estate only to the extent that its value exceeds the value of her independent property. New Jersey's statute is unique in that regard. It works this way: once the amount of the elective share has been fixed, the court is obligated by N.J.S.A. 3B:8-15 to order the manner of its payment. N.J.S.A. 3B:8-18(a) says that the elective share shall be satisfied first by applying
[t]he value of all property ... owned by the surviving spouse in his own right at the time of the decedent's death from whatever source acquired or succeeded to by the surviving spouse as a result of decedent's death notwithstanding that the property ... succeeded to by the surviving spouse as the result of decedent's death has been renounced by the surviving spouse.
The quoted language says two key things. The first is that the value of the survivor's own independently acquired property must be deducted from her calculated elective share. If it is greater than her share, she gets nothing more. If it is less, she gets the difference. This rule is a substantial departure made by New Jersey from the Uniform Probate Code provisions that underlie almost the entire remainder of the statute. Unlike the Code's section 2-207 grant to the spouse of a share of the augmented estate without regard to her own independently acquired resources, our law grants that share only to the extent the spouse satisfies a test of need. Her need is measured by the amount by which the value of her own wealth plus death transfers of all kinds from the decedent is exceeded by the calculated value of one third of the augmented estate. 2
The second key statement in N.J.S.A. 3B:8-18(a) is that the value of property coming to the survivor by reason of the decedent's death is deducted from her calculated share. That means, among other things, that, if the decedent leaves anything to his spouse in his will or by non-testamentary transfer taking effect on death, its value is deducted from her share. As a result, even though she has elected against the will, she must take her elective share first out of assets the decedent has chosen to give her by will or otherwise. Since she will be charged with the value of those assets, the court's N.J.S.A. 3B:8-15 order should direct their transfer to her as part of her share before touching other estate assets or persons liable for contribution. 3
Thus, the elective share is to be satisfied first out of the survivor's independent wealth and out of the decedent's bequests and non-probate transfers to her. If they are not sufficient, liability for the balance is not limited to residuary legatees or probate estate beneficiaries. The burden is required by N.J.S.A. 3B:8-18(c) to be:
equitably apportioned among the recipients of the augmented estate in proportion to the value of their interests therein.
In the absence of testamentary directions to the contrary, therefore, pre-death and non-probate transferees share the burden of satisfying the elective share ratably with specific, general and residuary legatees.
The court's duty under N.J.S.A. 3B:8-15 is to "determine the amount of the elective share". That means only that, if agreement cannot be made, the court has to fix the values of the various parts of the augmented estate and the elective share so that appropriate payment or distribution can be ordered. It does not require date-of-death valuation. It does not convert the fractional elective share into a "pecuniary" share of fixed value. See In re Thompson, 90 N.J.Super, 350, 217 A.2d 627 (App.Div.1966), on remand, 98 N.J.Super 36, 235 A.2d 920, aff'd, 104 N.J.Super 324, 250 A.2d 35 (App.Div.1969). The court's further duty under N.J.S.A. 3B:8- 15 is to enter an order directing the "payment" or distribution of the elective share ratably from the various testamentary bequests and by contribution from recipients of parts of the augmented estate that are not in the hands of the executor. In order to do that, the court must select a method of valuation.
It has generally been held elsewhere under similar statutes that the electing spouse will share in the gains and losses in asset values occurring between death and distribution. Estate of Greenfield, 484 Pa. 141, 398 A.2d 983 (1979); Annot., 7 ALR 4th 989 (1981). The rule is sound and equitable and should be adopted in New Jersey.
There are a number of reasons. First, even though the statute speaks of the "amount" of the elective share, it deals with it as a fractional and not a...
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