Ten Eyck v. Walsh

• Decision Date: 21 April 1947
• Docket Number: No. 7510.,7510.
• Parties: TEN EYCK v. WALSH, Director, Division of Taxation. In re TEN EYCK'S ESTATE.
• Court: New Jersey Prerogative Court

52 A.2d 445

TEN EYCK

v. WALSH, Director, Division of Taxation.In re TEN EYCK'S ESTATE.

No. 7510.

Prerogative Court of New Jersey.

April 21, 1947.

Appeal by Henrietta Ten Eyck, as executrix of the last will of Jay Ten Eyck, deceased, from the transfer inheritance tax assessment, in the estate of decedent, opposed by Frank E. Walsh, Director, Division of Taxation, Department of Taxation and Finance.

Assessment sustained in part, and in part, annulled.

Syllabus by the Court.

1. Proofs examined and held to sustain transfer inheritance tax assessments upon the decedent's inter vivos transfers to his son and daughter, and the transfer of securities to his wife.

2. Held that the transfer tax assessment levied upon the decedent's transmutation, through an intermediary, of his title to his residential property, into an estate by the entirety, is not sustained.

Pitney, Hardin, Ward & Brennan, of Newak (William H. Osborne, Jr., of Newark, of counsel), for petitioner.

Walter D. Van Riper, Atty. Gen., and William A. Moore, of Trenton, Sp. Counsel, for respondent.

JAYNE, Vice Ordinary.

To retain the mastership of inter vivos transfers and yet to steer a safe course just off the legislatorial shoals of inheritance taxation demands in these days a very high degree of foresight, circumspection, and skill. Many have explored, few have discovered the direction. Modern legislation and its interpretation have shifted considerable alluvium into the channels of avoidance of either income or death taxes.

Mr. Jay Ten Eyck, an experienced lawyer and banker, who died testate on October 21, 1943, a resident of Maplewood, Essex County, New Jersey, at the age of 78 years, 11 months, was evidently one of the many to whom the neoteric fusillade of taxes was exceedingly vexatious. They always smote him, it is said, in a tender spot.

The decedent left an acknowledged estate of approximately $238,000, but the taxing authorities have resolved to levy a transfer inheritance tax on certain inter vivos transfer made by him in 1926, 1937, and 1941 in conformity with their conclusion that the specified transfers were made by the decedent either in contemplation of death or were intended by him to take effect in possession or enjoyment at or after his death. R.S. 54:34-1 et sea., N.J.S.A. 54:34-1 et seq.; Squier v. Martin, 131 N.J.Eq. 263, 24 A.2d 865. The executrix of the decedent's estate challenges the legal propriety of those assessments by this appeal. R.S. 54:34-13; N.J.S.A. 54:34-13.

In tax appeals of this character the periphery of attack, defense, and inquiry is customarily wide. It often encompasses the personal qualities of the transferor, his habits and propensities, his age and state of health at the time, the sociological and economic factors that impinged upon him, the pertinent circumstances amid which he was situated, his conduct both prior and subsequent to the transfers, the intrinsicalities of his inter vivos gifts, the fashion of his former and ultimate testamentary dispositions of his estate, which subjects comprise some but indeed not all of the sources of radiant information. Dommerich v. Kelly, 132 N.J.Eq. 220, 27 A.2d 871, affirmed 130 N.J.L. 542, 33 A.2d 893, affirmed 132 N.J.L. 141, 39 A.2d 30.

Therefore the story of each such case is normally a lengthy one, and the field of argumentation is correspondingly extensive, rendering it sometimes difficult to tune out the static. But, as in most cases, it is by the back and forth of controversy that we achieve that capacity for critical analysis which leads to a basis of decision.

And then, too, I have learned that one must penetrate beneath the superficial aspects of the transactions. One must have a curiosity about the psychological emotions of the decedent. Such an inquisition will usually expose the incentive, sometimes a tantalizing one, which has induced the person to gravitate toward a distinctive volition of action in his financial affairs.

In the present case it is frankly acknowledged that the periods at which income taxes became payable were painful and infelicitous occasions for this decedent. An oppugnancy to tax exactions, sometimes little less than phobic in intensity, has frequantly impelled astute individuals of substantial resources to hatch some particular policy of conduct in the manipulation of their assets and thereby in some degree alleviate their discomfort. An examination of the manipulations makes perceptible the selected policy. This decedent had a plan and pursued it.

I shall not enlarge this memorandum to make room for a recitation in detail of all of the revelations embodied in the transcript of the evidence. It will suffice to disclose the decedent's plan, the type of his transfers, his indubitable motive, and the conclusion to which I am ultimately conducted.

In 1926 the decedent was irked by the obligation to pay income imposts upon that portion of his earnings which he annually donated to his son and daughter for their spending money. Both son and daughter were then adults. He concocted a nostrum. He calculated the amount of such yearly donations and figured the quantum of securities in his portfolio that would annually yield a like amount. In conformity with his computations, he transferred to his wife in trust two funds of $16,000 each with instructions to pay the income from one to the son and from the other to his daughter. He did not then regard it necessary to prepare trust indentures evidencing with precision the terms of the trusts, but from the notations in his account book and from his oral declarations it is evident that he intended to retain a material control over the disposition of the corpus of each trust. Future allowances to his children ceased through his method of substitution. His personal income was thereby lessened.

Assuredly those transfers were not in origin motivated by contemplation of death, but had they subsisted unaltered in their original terms until the death of the decedent with no provision for the disposition of corpus over upon the death of the beneficiary after the settlor and with the possibility of reverter, they would have been subject to taxation. R.S. 54:34-1, subd. c; N.J.S.A. 54:34-1, subd. c; Commissioner of Internal Revenue v. Estate of Field, 324 U.S. 113; 65 S.Ct. 511, 89 L.Ed. 786, 159 A.L.R. 230. In passing on to the discussion of succeeding events, it may well be noted that a possibility of reverter continued to survive in the intervening 1931 trust indenture.

In these cases it is uniformly emphasized by the appellant that at the time of the alleged taxable transfers the transferor was in full bloom, bursting with vigor, sound in wind and limb, and hearty as a buck. This decedent was undoubtedly blessed with sound health, but as the years drop away there is normally some drain on the human stamina. In 1936, having exceeded in age the biblical span of three score years and ten, the decedent suffered an attack of apoplexy which impaired the nerve motility of his mental organism manifestly in the use of his right arm and hand. In an inquiry of our present purpose, such a casualty is infused with major significance because to suppose that a person falling a prey to such an alarming affliction would not indulge some thought of approaching dissolution would be a grotesque fantasy. The decedent thereupon relinquished his duties as counsel for the Mutual Benefit Life Insurance Company in Newark. The view backward began to encompass a greater area on his tableau of accomplishments than did his forward prospect.

While thus afflicted the decedent on February 5, 1937, transferred his title to his residential real estate at Maplewood through an emissary to himself and his wife as tenants by the entirety and on July 28, 1937, he executed an amended trust indenture in which he renounced all his reversionary interests in the trusts previously established for the beneficial advantage of his son and daughter. It was not until the arrival of that refluent season of his life that the decedent resolved to convert even apparently the last-mentioned transfers into absolute and unqualified gifts.

Life, however, continued to be kind to Mr. Ten Eyck and his health improved, but in 1941 he forsook all business engagements, and in that year he...