Conford, Kolovsky and Carton. The opinion of the court was delivered by Conford, P.J.A.D.
[112 NJSuper Page 420] We have here for review the validity of a determination of the Transfer Inheritance Tax Bureau of the Division of Taxation subjecting to transfer inheritance tax under N.J.S.A. 54:34-1(a) a bequest by Thornton C. Land of one-fourth of his adjusted gross estate to Margaret
McCampbell, his former wife, pursuant to a separation agreement executed between them during his lifetime. He died testate May 13, 1965, a New Jersey resident.
Land and Mrs. McCampbell were married in 1933. They entered into a separation agreement in 1958 in connection with a contemplated divorce, which ensued shortly thereafter. For present purposes the pertinent provisions of the agreement may be briefly summarized as follows: The husband agreed simultaneously to execute a will bequeathing to the wife, subject only to her surviving him, certain interests in his estate, the amount thereof depending upon the contingency of her remarriage after their divorce. Upon the occurrence of that event the bequest would be the greater of (1) one-fourth of the adjusted gross estate, as defined in the federal tax code, or (2) the sum of $25,000. Should the wife for any reason not receive the bequest on the husband's death, she would have a valid claim against the estate for the stated amount prior to other legacies. The agreement was expressly incorporated by reference into a Nevada decree of divorce between the parties.
Mrs. McCampbell remarried prior to Land's death and survived him. Land's last will contained a bequest to Mrs. McCampbell in the tenor agreed upon, and the will recites that the bequest is made pursuant to the agreement. The amount payable to Mrs. McCampbell under the will is $260,420.09, which the Bureau has subjected to transfer tax, pursuant to the section cited above, as property "transferred by will * * * from a resident of this State."
The executor of Land's estate attacks the determination of the Bureau, primarily on the theory that the "taxable event" under the statute is "the transfer of the right to property itself." It is argued that the legatee's "right of succession" to the property originated in the divorce decree (or agreement) and not in the will, and the mere fact that decedent chose to perform by bequest an obligation for which his estate would have been liable in any event should not render the transfer taxable. The State argues, to the contrary,
that it is of no consequence whether, absent the will provision, Mrs. McCampbell would have had an enforceable claim against the estate, without liability for inheritance tax. Here a testamentary provision was not only bargained for, but was executed and became the vehicle for transfer of the interest in the estate to the legatee. In such a case, says the State, the unambiguous mandate of the statute must take effect and subject the transfer to the tax.
There is no New Jersey decision directly in point. The closest expression is that found in Bente v. Bugbee , 103 N.J.L. 608 (E. & A. 1927). There testator promised to bequeath $15,000 to the taxpayer should she take him into her home for life. He died without honoring his promise, and the taxpayer recovered a judgment against his estate for the stated sum. The court held the judgment or its proceeds was not subject to inheritance tax. The claim was that of a creditor and was a deductible debt for inheritance tax purposes. The court distinguished cases from other jurisdictions where decedent kept his promise by executing a will "and the attempt was to escape the act on the theory that the testamentary provision was not donative in character" (103 N.J.L. at 612). It quoted from one of them as follows:
"The statute here does not provide for a tax because some one has a right arising out of a debt or otherwise, but only when a transfer of property is brought about by means of a will is a tax imposed. It is a tax upon the vehicle carrying the right, rather than a tax upon the right itself. It is in effect a declaration of law that when a will is used as a means of conveyance of property, a tax must be paid for that privilege." [at 612-613]
The Court of Errors and Appeals went on to say (at 613):
We are not concerned at this time with the question whether, if Steinberg's will had contained in unimpaired form the bequest in fulfillment of his contract, that bequest would be taxable. The cases just cited so hold; but that point is not before us. What is before us is a repudiated promise, ...