Tax Court: Carmine Paul, Executor v. Director, Division of Taxation; Docket No. 000307-2016, opinion by Nugent, J.T.C., decided June 2, 2020. For plaintiff – Thomas M. Wolfe (Wolfe Ossa Law, attorneys); for defendant – Heather Lynn Anderson (Gurbir S. Grewal, Attorney General of New Jersey, attorney).
Decedent formed an irrevocable inter vivos trust in June 2007, funded with cash and securities, naming himself and his son-in-law, Carmine Paul, as trustees. By the terms of the Trust Indenture the trustees were required to pay to Decedent the net income from the trust on a quarterly basis. Trustees had the discretion to distribute principal to the beneficiaries in an amount limited by the trust, but Decedent was not entitled to any distribution of trust principal. At Decedent’s death, the remaining trust property was to be distributed to the beneficiaries named in the Trust Indenture. Prior to his death Decedent suffered a stroke and Carmine Paul assumed the role of trustee. Decedent continued to receive net income distributions from the trust until his death in 2013. After Decedent’s death Defendant audited the New Jersey Resident Decedent Inheritance Tax return and included in Decedent’s estate the value of the trust. Defendant found that Decedent had reserved a life estate in the trust income and assessed inheritance tax on the assets under N.J.S.A. 54:34-1(c) as a transfer “intended to take effect in possession or enjoyment at or after . . . death.” In challenging the tax, Plaintiff claimed that because the trust authorized the trustees to distribute principal to the beneficiaries on a discretionary basis, Decedent never retained a life estate in the property since the trustees could have drained the trust principal. Moreover, Plaintiff claimed the court should apply N.J.S.A. 54:34-1.1 to exempt the property from tax. The court finds that neither the statutes nor the case law provides support for Plaintiff’s claim. The facts fit within the plain text of the statutes, where Decedent reserved an interest in the property transferred for a period measured by Decedent’s life. Moreover, N.J.S.A. 54:34-1.1 requires that a Grantor who retained an interest in the property transferred must execute in writing a complete disposition of the property interest more than three years prior to death. Plaintiff failed to meet his burden of proof to establish that the transfer was outside the reach of the “at or after death” provision of the statute or that Decedent executed a timely and complete disposition of his interest in the property. Accordingly, the court grants Defendant’s motion for summary judgment affirming the assessment.