$200 MILLION ESTATE TAX CASE & 50 YEAR OLD WILL — $$$$ millions on the line in estate taxes and deductions for executor fees while companion wants a piece of the $200 Million Estate

This recent New Jersey case of    estate tax litigation   and probate litigation has facts that would make a great law school exam question.   No one likes probate litigation and paying taxes, let alone    estate taxes.   After all, the estate tax is a tax on all your assets at your death — after you paid income tax and, capital gains tax when you earned that money.   Good estate planning attorneys can save you estate taxes.    Excellent   estate   attorneys   can   save you millions in estate taxes and deductions when the government litigates with the estate.   That’s what happened in this recent New Jersey estate tax case—– it sheds light on those states that still impose a state estate tax.   Any client with ties to the northeast, or any state that makes you file estate tax returns, may wish to read this estate tax case, whose opinion was issued just days ago.  You may also want to read this case if you’re involved in a probate administration that includes the filing of a federal estate tax return at the same time that probate litigation, or claims against the estate, are pending. From an estate tax stamp point, when you complete, or fill out the federal estate tax return, you have to disclose the pending probate litigation and claims against the estate  —  even potential claims against the estate. You actually have to value those claims which you may be able to deduct from the value of the estate.

BASIC ESTATE ADMINISTRATION QUESTIONS WHEN YOU HAVE TO FILE AN ESTATE TAX RETURN AND THERE IS PENDING PROBATE LITIGATION OR ESTATE CLAIMS

1. Knowing how to complete, and review, a federal   estate tax return,   called an estate tax   IRS form 706,   can literally save you millions of dollars.
2. What do you take as an  estate tax deduction  ?
3. How do you  value assets and claims   against the estate  ?
4. What do you do with pending claims that are not settled by the time the estate tax return is due to be filed?

$200 MILLION ESTATE,  PROBATE LITIGATION AND ESTATE TAXES DUE —– question of  marital deduction,  reducing estate taxes   &  millions paid out to companion

When you’re administering an estate,  and you have probate litigation, and the IRS, or a State Department of taxation, knocking on your door, you need more than just great estate attorneys —-you also need   great estate litigators   — to advocate, negotiate, and get ready for trial.    Well it looks like the estate in this case had both.

This New Jersey estate was pitted against the New Jersey division of taxation over estate taxes,   including the computation of estate taxes.   Specifically, at issue was whether a federal marital deduction could be used to reduce the amount of estate taxes to be paid.

Isn’t New Jersey, like most states that have a state estate tax, supposed to calculate their ESTATE TAX like the federal estate tax — the same way?    Don’t you get an estate tax credit for any estate taxes or death taxes paid at the state level?   These are very important questions which the attorneys for the estate raised in their argument with the New Jersey division of taxation.   The attorneys for the estate were excellent, well prepared, and very knowledgeable about federal estate taxes and New Jersey estate tax matters.

New Jersey also  disallowed as an estate tax deduction,   or an expense of estate administration —  the estate executor’s compensation and fees .   In Florida, we call an estate executor the “personal representative.”

So let’s get this straight:   it’s not enough that the US government wants a sizable estate tax, but now the state of New Jersey also wants an estate tax and it wants to disallow certain estate tax deductions.

In a wonderful victory by the New Jersey lawyers for the estate, this court found that New Jersey’s    “denial of a portion of the executors’ commissions is improper. ” That’s a good taxpayer victory.

HERE ARE THE FACTS:

• Lillian died with a will on November 22, 2007 at age 92.
• Her estate was worth $200 million.
• Michael was Lillian’s companion for over 51 years.
• Michael was a resident of New Jersey.
• Lillian’s 1958 will and a 1991 codicil did not leave anything to Michael.

ESTATE’S PROBATE LITIGATION & THE INHERITANCE LAWSUIT — Michael want$  a  piece  of   the   $200   Million  estate

• the estate was opened
• the probate process began
• court instructions were sought regarding certain estate distributions
• Michael filed a probate lawsuit over an inheritance

COMPANION’S   PROBATE LAWSUIT     OVER INHERITANCE – he wants a share of the $200 million estate as a “spouse “

Michael argued:

• He & Lilly resided together for 36 years in Alpine, New Jersey
• the couple held themselves out as married to society in general and to family members, in New Jersey as well as in Lebanon, Pennsylvania, Michael’s hometown.
• Although he and Lily were  never formally married  in a ceremony, Michael wanted recognition of a common-law marriage under the laws of Pennsylvania
• Michael wants a share of the estate as a spouse
• the estate opposed Michael claiming that Lily refused to marry Michael

ESTATE SETTLES INHERITANCE LAWSUIT WITH COMPANION

• On September 23, 2008 , the probate litigation ended, with the estate in the companion Michael entering into an estate settlement agreement .
• This ended the Estate’s probate proceedings
• Michael got a residence, and
• The estate also agreed to create a    $5 million trust       for his benefit
• The Agreement noted that the trust was intended to be qualified as Qualified Terminable Interest Property (“QTIP”).     In other words, it would qualify for the federal estate tax marital deduction.   It would save the estate estate taxes.

Millions $$$ were paid out in attorneys fees and fees for the estate executor.