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Matter of Estate of Mary A. Vondermuhll

Decided: March 3, 1978.

IN THE MATTER OF THE ESTATE OF MARY A. VONDERMUHLL, DECEASED


Matthews, Crane and Antell. The opinion of the court was delivered by Matthews, P.J.A.D.

Matthews

This is an appeal from the final determination of the Director, Division of Taxation (Director), made April 6, 1976, rejecting a claim for refund of certain transfer inheritance taxes paid by the estate of Mary A. Vondermuhll, deceased.

The factual circumstances involved in this appeal arose prior to July 1920 when Alfred Vondermuhll, husband of Mary A. Vondermuhll, received certain personal property from his mother Anna Vondermuhll-Hoffman, on condition that he pay the income derived from the property to her for life. Vondermuhll then, on July 17, 1920, transferred that property to himself and his brother George, as trustees of a trust. The trust instrument (hereinafter referred to as the 1920 Trust) provided that Anna Vondermuhll-Hoffman was to receive the income earned on the corpus for her life. Upon her death the corpus was to be paid to the grantor Alfred, if living, and if deceased, the corpus was to be distributed as he should appoint by will.

In 1931 Alfred became a general partner in the stock brokerage firm of Speyer-Alexander and Company of New York City after making capital contributions totalling $700,000. Because in his opinion the securities business was hazardous and the assets of the 1920 Trust might be subjected to the claims of future creditors of the firm should the partnership fail, Alfred "decided to divest himself of the remainder interest in the trust fund and accordingly made a gift thereof to his wife." On May 19, 1931 Alfred transferred his vested remainder interest in the 1920 Trust to his wife Mary. By virtue of that transfer he ostensibly no longer had any property interest in the 1920 Trust corpus.

On August 6, 1931 Anna Vondermuhll-Hoffman, as life beneficiary, executed her consent to the revocation of the 1920 Trust and to the return of the corpus to the grantor. On August 18, 1931 Mary Vondermuhll, as remainder beneficiary, also executed her consent to the revocation of the 1920 Trust and to the return of the corpus to the grantor. She executed that consent, however, only upon the condition that the grantor make a gift of the corpus property to her and deliver it to her as she should direct. Finally, on August 18, 1931, noting that George had resigned as trustee, Alfred revoked the 1920 Trust, whereupon the corpus reverted to him. He then fulfilled the condition Mary Vondermuhll placed upon her consent to the revocation and transferred the property constituting the trust corpus to her.

On August 19, 1931 Mary, naming herself as grantor, executed a trust indenture (hereinafter referred to as the 1931 Trust) and transferred the property in trust to Alfred and the Montclair Trust Company as trustees. The indenture provided that the trust income was to be paid to Anna Vondermuhll-Hoffman for life, then to herself for her life, and then to Alfred and her children in equal shares. Upon the death of the survivor of these persons the corpus was to be distributed as determined by the children exercising testamentary powers of appointment.

Alfred Vondermuhll died on June 5, 1947. In Schedule C of the New Jersey transfer inheritance tax return filed by his estate, the 1931 Trust was reported as a nontaxable asset. The claimed exemption was accepted by the Bureau and the 1931 Trust was not included in its tax assessment as a taxable asset. Consequently, the net taxable estate amounted to $8,097.87, generating a total inheritance tax of only $21.49.

The 1931 Trust was also reported as not taxable in the federal estate tax return filed for Alfred's estate. The Internal Revenue Service determined, however, that the trust assets were taxable, thus creating a federal estate tax deficiency of $128,257.26. Since the estate was allowed a credit of $10,219.66 for all state death taxes, it incurred a New Jersey estate tax liability of $10,198.45 under N.J.S.A. 54:38-1, which was paid June 18, 1951.

Anna Vondermuhll-Hoffman died July 27, 1947 and the income of the 1931 Trust was then paid to Mary Vondermuhll until her death on August 25, 1970. The assets of the trust were included in the estate of Mary Vondermuhll as a transfer to take effect in possession or enjoyment at or after death under N.J.S.A. 54:34-1(c), and the transfer inheritance tax was assessed and paid on that asset. A refund claim was subsequently made June 13, 1973.

On April 24, 1974 a hearing was held on the refund claim. The facts were presented to the hearing officer by means of documents. No testimony was offered by the estate. The estate's argument at the hearing was that the 1931 Trust should not have been included in Mary Vondermuhll's estate because it already had been taxed by New Jersey in 1949 as an asset of the estate of Alfred Vondermuhll; that the assessment of the New Jersey estate tax in 1951 was in effect an assessment of the inheritance tax; that since the Internal Revenue Service in 1949 deemed Alfred Vondermuhll to be the grantor of the ...


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