Marks' Estate, In re

• Decision Date: 21 June 1974
• Citation: 322 A.2d 860,129 N.J.Super. 276
• Parties: In the Matter of the ESTATE of Jerry M. MARKS, Deceased.
• Court: New Jersey County Court. New Jersey County Court — Probate Division

Page 276

129 N.J.Super. 276

322 A.2d 860

In the Matter of the ESTATE of Jerry M. MARKS, Deceased.

Hudson County Court Probate Division, New Jersey.

June 21, 1974.

Zucker, Lowenstein, Gurny, Facher & Zucker, Newark, for plaintiff Russell Marks (Saul J. Zucker, Newark, appearing).

Weltchek, Prupis & Ritz, Elizabeth, for defendant Sylvia Marks (Ernest Prupis, Elizabeth, appearing).

GAULKIN, J.S.C., Temporarily Assigned.

Plaintiff Russell Marks instituted this action to determine the allocation of the federal estate tax assessed against the estate of Jerry M. Marks, who died intestate on September 2, 1968. Plaintiff, a son, and defendant Sylvia Marks, the widow, are the sole persons entitled to share in the intestate estate. Their dispute is whether the statutory intestate share payable to defendant, which has qualified as a marital deduction in the assessment of the federal estate tax, should be computed before or after deducting the estate tax thus assessed against the estate. If the computation is made before deduction of the tax, the burden of the tax will fall solely upon plaintiff; if after, plaintiff and defendant will share that burden equally.

Decedent's gross estate (26 U.S.C.A. § 2031) reported on the federal estate tax return was $652,153.27; after deduction of debts and expenses of $108,976.21, the adjusted gross estate (26 U.S.C.A. § 2056(c)) was fixed at $543,177.06. The statutory intestate share distributable to defendant, I.e., one-third of the personal property (N.J.S.A. 3A:4--2), was reported at $181,059.02, which amount was taken as a marital education (26 U.S.C.A. § 2056). ^* That deduction reduced the adjusted gross estate to a taxable estate of $307,970,99, against which a net federal estate tax of $92,032.51 was assessed.

By judgment entered July 18, 1973 the final account of the administrators was approved and the balance of principal and income was directed to be distributed to plaintiff and defendant in equal shares, 'except as to $23,008.12 reserved from Russell's share, being the amount of the dispute between them relating to the impact of the respective original shares of Russell and Sylvia.' The parties have stipulated that if defendant's statutory share is to bear any federal estate tax burden, the retained sum is to be paid in its entirety to plaintiff, and that if it is not to bear such burden, the fund is to be paid to defendant. There is accordingly no need to explore further the manner in which the net tax was computed or how it might be recomputed following this decision. Cf. Case v. Roebling, 42 N.J.Super. 545, 127 A.2d 409 (Ch.Div.1956), fn. 1 at 556--557; 26 U.S.C.A. § 2056(b)(4)(A).

The question thus presented has not been passed upon in any reported New Jersey decisions. Several cases have considered related questions as to the allocation of the federal estate tax burden to a surviving spouse who is a beneficiary under the decedent's will. See Surina v. Gilbert, 54 N.J. 68, 253 A.2d 465 (1969); Gesner v. Roberts, 48 N.J. 379, 225 A.2d 697 (1967), rev'g 91 N.J.Super. 255, 219 A.2d 885 (App.Div.1966), and aff'g 88 N.J.Super. 278, 212 A.2d 43 (Ch.Div.1965); Bartel v. Clarenbach, 114 N.J.Super 79, 274 A.2d 841 (Ch.Div.1971); In re Burnett, 50 N.J.Super. 482, 142 A.2d 695 (Cty.Ct.1958); Case v. Roebling, Supra; cf. Dodd v. United States, 345 F.2d 715 (3 Cir. 1965).

Read together, these cases hold that state law alone determines the allocation of the federal estate tax (Gesner, supra, 91 N.J.Super. at 260, 219 A.2d 885); that our apportionment statutes (N.J.S.A. 3A:25--30 et seq.) govern only the allocation of taxes as between probate and non-probate assets (Gesner, supra, 91 N.J.Super. at 259, 219 A.2d 885; In re Burnett, Supra, 50 N.J.Super. at 494, 142 A.2d 695); that a testamentary expression or plan may evidence an intent of the testator that the surviving spouse shall or shall not bear any federal estate tax impact, which intent should be effectuated (Gesner, supra, 48 N.J. at 381, 225 A.2d 698), and that 'absent an express statement in the will, we should start with the assumption that the testator intended the maximum tax advantage for the estate and maximum benefit to the spouse within the limits of his gift to her' (Ibid).

The parties have stipulated that they have no evidence to offer that would shed light on decedent's intentions or expectations in the devolution of his estate. The holdings of the New Jersey cases thus are not necessarily dispositive here: not only is there is testamentary intent to intuit, but any 'assumption' concerning a presumed 'maximum benefit to the spouse' is clouded by uncertainty that decedent intended any benefit to the spouse at all.

Case law outside New Jersey is not persuasive. Only a few reported decisions appear to have dealt with the precise issue; they have reached contrary results. See Pitts v. Hamrick, 228 F.2d 486 (4 Cir. 1955). First National Bank of Topeka, Kan. v. United States, 233 F.Supp. 19 (D.Kan.1964) , Estate of Whipple v. United States, 286 F.Supp. 674 (W.D.Ky.1968), aff'd 419 F.2d 494 (6 Cir. 1969), and Snodgrass v. United States, 308 F.Supp. 440 (N.D.Ala.1968), aff'd 427 F.2d 150 (5 Cir. 1970), sustaining the computation of the widow's intestate share before deduction of the federal estate tax; Contra, Moorman v. Moorman, 340 Mich. 636, 66 N.W.2d 248 (Sup.Ct.1955), and Williamson v. Williamson, 224 Ark. 141, 272 S.W.2d 72 (Sup.Ct.1954). A greater number of cases have considered the allocation question in the analogous situation of the surviving widow who exercises a statutory election against a will. Here again two lines of authority have emerged; full statements of the conflicting views and citation of numerous authorities can be found in Hammond v. Wheeler, 347 S.W.2d 884 (Mo.Sup.Ct.1961), holding the statutory share is to be fixed before deducting the tax, and Contra, In re Glover's Estate, 45 Hawaii 569, 371 P.2d 361 (Sup.Ct.1962).

In determining which of the opposing views to adopt, courts of other states have centered their attention on local law, including such matters as the language of the local statute describing the intestate or elective share (E.g., Pitts v. Hamrick, Supra); local law as to the manner of accommodating the Congressional policy incorporated in the marital deduction (E.g., First National Bank of Topeka, Kan. v. United States, Supra), and local rules of equitable distribution of decedents' estates (E.g., Hammond v. Wheeler, Supra). The cases of other jurisdictions thus offer useful explications of the contrary views; but, as they suggest, New Jersey law and policy must determine the choice to be made between them. Cf. Gesner, supra, 91 N.J.Super. at 268, 219 A.2d 885.

New Jersey statutory law offers little assistance to the inquiry. N.J.S.A. 3A:4--2 describes the intestate share of the widow simply as a fraction of 'the personal property':

One-third of the personal property shall be distributed to the intestate's husband or widow, as the case may be, and the residue in equal portions among the intestate's children and such persons as legally represent any child who may have died.

Although it might be argued that 'the residue' allocated to children is to bear the taxes (Cf. National State Bank of Newark v. Nadeau, 57 N.J.Super. 53, 62 153 A.2d 854 (App.Div.1959); Snodgrass v. United States, Supra), nothing appears in the legislative history of this provision or its predecessors to support the conclusion that the Legislature intended to import such meaning in its use of the term 'residue.' Both parties concede that such a contention would be unsupportable.

N.J.S.A. 3A:25--4 similarly offers little guidance:

After executors or administrators legally account for personal property of the decedent, the court in which they have accounted, may direct a just and equal distribution of the personal property, whereof the decedent died inestate, which remains after payment of debts, funeral charges and other just expenses of this title (Sec. 3A:4--1 et seq).

The parties agree that the term 'debts' as used in the statute includes federal estate taxes (although there is no New Jersey case so holding and such a reading might be open to dispute (see, E.g., Hammond v. Wheeler, Supra, 347 S.W.2d at (887); nevertheless the question of allocation of such a 'debt' among the heirs remains. As is clear from the New Jersey cases involving a spouse who takes a share of the residue by will, the mere fact that she participates in the residue after payment of 'debts' does not itself require that she share proportionately in the estate tax. See Gesner v. Roberts, Supra; cf. N.J.S.A. 3A:25--2. The statutes with respect to intestate succession thus neither specifically provide for, nor can they be interpreted to extend to, the question of allocation presented here.

Recourse must then be made to our decisional law. As noted, the New Jersey cases, limited to tax allocations under wills, focus principally on the testator's actual or assumed intent, and 'start with the assumption that the testator intended the maximum tax advantage for the estate and the maximum tax benefit to the spouse * * *' Gesner, supra, 48 N.J. at 381, 225 A.2d 697 at 698. Defendant urges that a like 'assumption' be indulged here and decedent's assumed intent be effectuated; plaintiff argues that 'intestacy removes any interpretation of...