Montclair Trust Co. v. Zink

• Decision Date: 19 February 1948
• Docket Number: No. 7928.,7928.
• Parties: MONTCLAIR TRUST CO. et al. v. ZINK, Commissioner, Acting Director of the Division of Taxation, Respondent. In re MILLS' ESTATE.
• Court: New Jersey Prerogative Court

57 A.2d 372

MONTCLAIR TRUST CO. et al.

v. ZINK, Commissioner, Acting Director of the Division of Taxation, Respondent.In re MILLS' ESTATE.

No. 7928.

Prerogative Court of New Jersey.

Feb. 19, 1948.

Suit by the Montclair Trust Company and others, executors of the last will and testament of David B. Mills, deceased, and the Davella Mills Foundation, residuary legatee and devisee under such will, against Homer C. Zink, Commissioner, Acting Director of the Division of Taxation, State Department of Taxation and Finance, to determine whether inter vivos transfers of property by the deceased to a charitable foundation were taxable as transfers made in contemplation of death, and for a decree nullifying assessment levied on the inter vivos transfers, and for reduction of assessment on corporate stock involved in testamentary disposition.

Decree advised nullifying assessment on inter vivos transfers, and sustaining assessment on corporate stock involved in testamentary disposition.

See also 139 N.J.Eq. 56, 49 A.2d 889.

Syllabus by the Court.

1. Gifts inter vivos which are in reality absolute, consummate, and immediately effective are not taxable by the statute unless they were made by the donor in contemplation of death, and the determinant of their taxability as transfers in contemplation of death is the motive, intent, and purpose of the transferor.

2. The personal qualities of the transferor, his habits, propensities, and conduct both prior and subsequent to the transfers, as well as the intrinsicalities of his inter vivos gifts are, inter alia, often illuminative factors in the effort to detect ‘the motivating, impelling cause’ and ‘the controlling purpose’ of such gifts.

3. In general, a motive is a consideration which determines choice and becomes an incentive to undertake the accomplishment of some act.

4. At the extremity of the proceeding, the burden reposes upon the taxing authority to establish by the fair preponderance of the evidence that the inter vivos gifts were made as a substitute for a testamentary disposition.

5. Held: that the gifts, except restricted to charitable purposes, were otherwise unqualified and irrevocable; that they were immediate, complete, and available for possession and enjoyment by the beneficiaries during the life of the donor; that such an accomplishment could not have been attained by means of a testamentary disposition; and that the assessment levied upon these inter vivos gifts, as made in contemplation of death, is erroneous and should be annulled.

6. Under our statute (R.S. 54:34-5, N.J.S.A.) transfer inheritance taxes shall be computed upon the clear market value of the property transferred.

7. The so-called ‘Blockage Rule’ of valuation discussed.

8. Held, under the proofs, that the assessment based upon the valuation of a block of stock, consisting of $53,000 shares of General Motors Corporation, at the lowest price per share at which the stock of that company actually sold on the date of the decedent's death, was not erroneous.

Osborne, Cornish & Scheck, of Newark (Abram H. Cornish, of Newark, of counsel), for executors-appellants.

Stryker, Tams & Horner, of Newark (Josiah Stryker, of Newark of counsel), for Davella Mills Foundation, appellant.

Walter D. Van Riper, Atty. Gen. (William A. Moore, of Trenton, Special Counsel), for respondent.

JAYNE, Vice Ordinary.

The notable personage in the authentic legend of this case is one David B. Mills, a former resident of Montclair, Essex County, New Jersey, who died testate on February 25, 1944. In the springtide of his business career he is said to have encountered financial adversities which not only introduced him to the vexations and, perhaps, mortifications of such misfortunes, but seem to have moistened his heart with a realistic perception and consciousness of those distressing pressures that fall upon the indigent.

Those recollections remained thereafter fadelessly in his memory. He eventually acquired millions of dollars. As if in reward for his continuous generosity to others, life was munificent to him. He died at the age of eighty-six.

The records of his philanthropy and benevolence can be traced uninterruptedly to the year 1908. His charity promptly became known and, as in such cases, there was soon ‘a hard-beaten road to his house.’ The worthiness of each applicant necessitated some inquiry and in that pursuit, which progressively increased in volume, Mrs. Mills was his devoted collaborator. In the death of Mrs. Mills in 1931 he sustained the irreparable loss of her faithful interest and cooperation, but his inclination to continue his philanthropic activities became no less resolute.

Increasing experience in the practicalities of such undertakings caused him to entertain with greater favor the impression that his charities could be more efficiently and beneficially dispensed by enlisting the aid and judgment of some competent and trustworthy associates. At the close of the year 1934 his donations had already exceeded a total of $1,250,000. Hence, in 1935 he in association with four of his acquaintances initiated the incorporation of a non-profit organization, the objects of which were entirely charitable in purpose and the corporate existence of which was limited to twenty years. It was given the corporate title ‘The Davella Mills Foundation.’ The name ‘Davella,’ a composite of the Christian names of Mr. Mills and his deceased wife, reverberates a sentimental medley.

The purposes for which the corporate body was formed are exhibited by the following quotation from its charter:

‘II. That the purposes for which the corporation is formed are, to receive, hold, care for, invest in and operate real and personal property and to use and distribute from time to time all the income and all principal, as well, which it shall receive in charitable gifts, to be applied, consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds or hearts under the influence of education or religion, or by relieving their bodies from disease, suffering or constraint, or by assisting them to establish themselves in life; or by erecting or maintaining public buildings or works; or by otherwise lessening the burdens of government. Such funds may be used and distributed for all of said purposes, or for any one or more within or without the State of New Jersey. It is the intent and purpose that the said corporation shall be organized and operated exclusively for religious, charitable, scientific, or educational purposes, within the classification of legal charities and no part of the net earnings nor of the principal shall inure to the benefit of any private shareholder or individual and no substantial part of the activities of such corporation, or of any recipient of its funds, shall be to carry on propaganda or otherwise to attempt to influence legislation.’

On May 31, 1935, Mr. Mills executed an instrument evidencing his first contributions to the Foundation, comprising an assignment of 50,000 shares of the common stock of General Motors Corporation and a check for $12,500 representing the quarterly dividend thereon payable June 12, 1935, in trust for the following uses:

‘* * * to take and hold the same and collect the income and the principal when due, to invest and reinvest the principal, until the distribution thereof, in such investments as are legal for investments of the funds of Savings Banks in New Jersey, but with power in the discretion of its trustees to retain the investments herein transferred, subject only to the limitations contained in its certificate of incorporation, and to apply the income and the principal in the discretion of the trustees of said corporation to any or all of the general charitable purposes set forth in the certificate of incorporation of the said The Davella Mills Foundation in the manner and under the safeguards and limitations and pursuant to the corporate powers therein set forth.’ (Italics mine.)

The decedent thereafter made annual donations to the Foundation with similar instructions until the year of his death. His inter vivos gifts to that donee are represented by the taxing authority to aggregate the sum of $2,955,681.16. The departmental Division of Taxation through its bureau has resolved that all those donations are taxable as inter vivos transfers made by the decedent in contemplation of death. R.S. 54:34-1, subd. c, N.J.S.A.

The following excerpts extracted from the respondent's brief engage my attention:

‘As has been noted herein, these gifts extended over a period of nine years and the respondent's finding encompasses all of the transfers made during that time and, for the purposes of this argument will be treated as a homogeneous series of transfers since they all appear to have been motivated by the same considerations and were made to the one beneficiary.’ (Italics mine.)

‘The respondent has determined that the facts and circumstances surrounding the creation of the Davella Mills Foundation, and the making of the various gifts thereto are indicative of a state of mind on the part of the decedent which in the ordinary course of events, would have led him to make a testamentary disposition of his property.’ (Italics mine.)

It must be at once acknowledged that gifts inter vivos which are in reality absolute, consummate, and immediately effective are not taxable by the statute unless they were made by the donor in contemplation of death, and the determinant of their taxability as transfers in contemplation of death is the motive, intent, and purpose of the transferor. Squier v. Martin, 131 N.J.Eq. 263, 24 A.2d 865, and cases therein cited.

The intent and purpose which motivated this decedent in his creation of the Foundation and his generous contributions to its fund cannot be described with greater lucidity than has been done by the witness Paul H. Hudson whose testimony, abundantly corroborated, I adopt and here...