Squier v. Martin

• Decision Date: 13 March 1942
• Docket Number: No. 5854.,5854.
• Citation: 24 A.2d 865,131 N.J.Eq. 263
• Parties: SQUIER et al. v. MARTIN, State Tax Commissioner. In re SQUIER'S ESTATE.
• Court: New Jersey Supreme Court

24 A.2d 865

131 N.J.Eq. 263

SQUIER et al.

v. MARTIN, State Tax Commissioner.In re SQUIER'S ESTATE.

No. 5854.

Prerogative Court of New Jersey.

March 13, 1942.

Syllabus by the Court.

1. The manifest object of the transfer inheritance tax statute, R.S. 54:34-1, N.J. S.A. 54:34-1, is to tax testamentary and intestate transfers and also inter vivos transfers which are in fact makeshifts employed to effectuate a purpose normally accomplished by will.

2. An actual, direct, complete and immediately effective gift is not taxable by the statute unless made by donor in contemplation of death or where the donor retains or gets back for his life the income, or enjoyment or the equivalent.

3. The determinant of the taxability of an inter vivos transfer as in contemplation of death is the intent and purpose of the transferor.

4. On appeal to the Ordinary (R.S. 54:34-13, N.J.S.A. 54:34-13; see, also, 54:33-2, N.J.S.A. 54:33-2) the power conferred upon the Ordinary embraces and undoubtedly contemplates the exercise of, the right to investigate judicially the legal and basic factual propriety of the tax assessment.

5. The transfers considered in the present appeal were not made within the prescribed two-year period. Therefore no artificial statutory presumption arises that they were made in contemplation of death. At the extremity of the proceeding, the burden reposes upon the taxing authority to establish by the fair preponderance of the specific and inferential facts that the transfor was made as a substitute for testamentary disposition.

6. Evidence considered: held, (a) that the inter vivos transfers of 1030 were actual, direct, complete and immediate, with no intended postponement of enjoyment and that the assessments against these transfers as made in contemplation of death are erroneous and they should be vacated; (b) that the imposition of the taxes upon the transfers made by the trust agreement of 1934 as transfers made in contemplation of death was justified by the evidence and these assessments are affirmed.

Proceeding in the matter of the appeal by Frederick C. Squier, Jr., and others, executors of the will of Frederick C. Squier, Sr., from the inheritance tax assessment in the estate of Frederick C. Squier, Sr., deceased, by J. H. Thayer Martin, State Tax Commissioner.

Decree advised in accordance with opinion.

Orlando H. Dey, of Rahway, for appellants.

David T. Wilentz, Atty. Gen., and William A. Moore, Asst. Atty. Gen., for respondent.

JAYNE, Vice Ordinary.

The executors of the will of Frederick C. Squier, Sr., have filed a petition in which they allege their dissatisfaction with the assessment of a transfer inheritance tax by the state tax commissioner on certain inter vivos transfers gratuitously made by the decedent. A brief precursory reference to the acknowledged facts will suffice to exhibit the controversial issues debated by counsel.

Frederick C. Squier, Sr., died testate, on August 29, 1937, at the age of eighty years and ten months. He was for many years prior to his death a resident of Rahway, Union County, New Jersey. The estate alienated by testamentary disposition pursuant to a will executed on February 7, 1935, was appraised by the commissioner at $1,601,377.36. The total value attributed to the inter vivos transfers is $5,312,944.18. Accordingly, the net taxable estate of the decedent was valued by the commissioner at $6,914,321.54.

The wife of the decedent, Minnie C. Squier, died on September 8, 1938. The decedent's son, Frederick G Squier, Jr., the latter's wife, Leora S. Squier, the decedent's daughter, Marjorie S. Searles, and her husband, Harold M. Searles, survive.

It is incidentally observed that the valuation or time of valuation of the transfers (cf. Nicholas v. Martin, 127 N.J.L. 35, 21 A-2d 323, affirmed sub. nom. Rutgers v. Martin, 127 N.J.L. 603, 23 A.2d 406), and also the apportionment of taxable interests arising under the last transfer are not disapproved by the appellants. In the prosecution of this appeal, the executors assert that the assessment of the tax on the two inter vivos transfers was unjustifiable and erroneous. A condensed exposition of the inter vivos gifts may be composed as follows:

Transfers of 1930

To Marjorie S. Searles Bonds

$ 728,276.70

5,000 shares N.J.Zinc Co.

370,000.00

To Frederick C. Squier, Jr. Bonds

728,276.70

5,000 shares N.J.Zinc Co.

370,000.00

To Minnie C. Squier

5,000 shares N.J.Zinc Co.

370,000.00

Total Value of 1930 Transfers

$2,566,553.40

Transfers of 1934

Trust Deed—

To Minnie C. Squier, Frederick C. Squier, Jr., Marjorie S. Searles, and others

$2,746,600.78

The transfers in 1930 were consummate gifts which were deemed by the commissioner to have been made by the decedent in contemplation of death.

The transfers in 1934 entered into the composition of a trust from which the decedent's wife was to receive the income during her life. Her life estate in this trust was valued by the commissioner, as of December 17, 1934, at $366,989.90, and taxed solely as a gift in contemplation of death. The trust agreement ordained that upon the death of the decedent's wife, the principal should be bisected: the income from one-half to be applied jointly to the use of the decedent's daughter, Marjorie S. Searles, and her husband, Harold M. Searles, and to the survivor of them and then to their daughter Catherine, the principal on her death to pass to her issue or if there be no issue, to her maternal next of kin. The income from the other half is to be divided equally between the decedent's son, Frederick, and his wife and to the survivor of them, and then to their issue for life, within the limits of the rule against perpetuity, the corpus ultimately vesting in their grandchildren or issue. After deducting the precedent life estate, the commissioner valued the remainder of the trust at $2,379,610.88, and levied transfer taxes on the several interests therein, persuaded by the circumstances that these benefactions were dispensed by the donor not only in contemplation of death, but also with the intent that they should become effective in beneficial possession and enjoyment at or after the donor's death.

Concisely stated, the last will of the decedent executed on February 7, 1935, directs that the residue, comprising the major part of his own estate, shall be divided to allow one-half to be retained in trust for his wife during her life, conferring upon her a general power to appoint by will the beneficiaries of the remainder; the other one-half is to be divided in equal parts, one of which passes absolutely to his two children in equal shares, and the remaining part is to be held in trust for them during their lives, with an ultimate distribution of the corpus to their issue in the proportions they shall designate by will.

In undertaking to determine the legal and logical propriety of the assessments here impugned by the appellants, it is essential to recall the precepts and principles by which such an inquiry should be governed.

In June, 1930, at which time the first gift was consummated, section 1, subsection "Third" of the Transfer Inheritance Tax Act (Chapter 144, Laws of 1929) provided that a tax should be imposed: "Third. When the transfer is of property made by a resident * * * by deed, grant, bargain, sale or gift made in contemplation of the death of the grantor, vendor or donor, or intended to take effect in possession or enjoyment at or after such death."

The statute in the present Revision ordains (54:34-1, subd. c, N.J.S.A. 54:34-1, subd. c) that a transfer inheritance tax shall be levied:

"c. Where real or tangible personal property within this state of a resident of this state or intangible personal property wherever situate of a resident of this state or real or tangible personal property within this state of a nonresident, is transferred by deed, grant, bargain, sale or gift made in contemplation of the death of the grantor, vendor or donor, or intended to take effect in possession or enjoyment at or after such death.

"A transfer by deed, grant, bargain, sale or gift made without adequate valuable consideration and within two years prior to the death of the grantor, vendor or donor of a material part of his estate or in the nature of a final disposition or distribution thereof, shall, in the absence of proof to the contrary, be deemed to have been made in contemplation of death within the meaning of paragraph 'c' of this section."

The legislative lineage apparently begins fifty years ago with the following pursuance: P.L.1892, c. CXXII, p. 206; P.L. 1893, c. CCX, p. 367; P.L.1894, c. CCX, p. 318; P.L.1898, c. 62, p. 106; P.L.1902, c. 217, p. 670; P.L. 1903, c. 90, p. 128; P.L. 1906, c. 227, p. 432; P.L.1908, c. 131, p. 200; P.L.1909, c. 31, p. 49; P.L.1909, c. 209, p. 304; P.L.1909, c. 159, p. 236; P.L.1909, c. 228, p. 325, N.J.S.A. 54:33-1 et seq., 54:34-1 et seq.; P.L.1910, c. 28, p. 42; P. L.1912, c. 226, p. 367, N.J.S.A. 54:34-1, 2, 4, 5, 54:35-2; P.L.1914, c. 57, p. 91, N.J. 5. A. 54:34-1, 2, 4, 5, 54:35-2, 3, 19-21; P.L.1914, c. 58, p. 97; P.L.1914, c. 59, p. 98, N.J.S.A. 54:33-9; P.L.1914, c. 151, p. 267, N.J.S.A. 54:34-1-5, 54:35-2, 12, 19-21; P.L.1915, c. 331, p. 604, N.J.S.A. 54:35-1, 3, 4, 5; P.L.1915, c. 392, p. 745, N.J.S.A. 54:34-3, 54:35-19-21; P.L.1917, c. 237, p. 800, N.J.S.A. 54:33-9; P.L.1917, c. 278, p. 984, N.J.S.A. 11:4-5 note; P.L.1920, c. 255, p. 473, N.J.S.A. 54:35-9; P.L.1920, c. 345, p. 610; P.L. 1922, c. 173, p. 292; P.L.1925, c. 102, p. 313; P.L.1926, c. 294, p. 488, N.J.S.A. 54:34-1-5, 54:35-2, 19-21; P.L.1927, c. 228, p. 428, N.J.S.A. 54:34-1, 2, 4, 5, 54:35-2; P.L.1927, cc. 247, 248 and 249, pp. 468-470, N.J.S.A. 54:33-4; P.L.1929, c. 144, p. 250, N.J.S.A. 54:34-1, 2, 4, 5, 54:35-2; P.L.1931, c. 197, p. 496, N.J.S.A. 54:33-5, 6; P.L.1931, c. 303, p. 749, N.J.S.A. 54:33-7, 8, 54:34-1 et seq.; P.L. 1931, c. 200, p. 499, N.J.S.A. 54:35-22; P.L. 1931, c. 199, p. 498; P.L.1931, c. 198, p....