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In re Probate of the Will of Lee

November 30, 2006

IN THE MATTER OF THE PROBATE OF THE WILL OF SAMUEL LEE, DECEASED.


On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. BER-P-146-03.

The opinion of the court was delivered by: Stern, P.J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued September 27, 2006

Before Judges Stern, A.A. Rodríguez and Baxter.

The trustees of Stevens Institute of Technology, one of two charitable residuary legatees under the will of Minerva Lee, appeal from a judgment of August 26, 2005, which directed that taxes payable from the corpus of Qualified Terminable Interest Property (QTIP) trusts created under the will were to be paid before the distribution of the residuary estate, resulting in a reduced residuary estate for distribution to the charities under Article IV of Minerva's will.*fn1 The issue arises incident to the probate of the will of Minerva's husband, Samuel Lee.

Specifically, the contested order provides that "taxes payable by the QTIP trusts by virtue of inclusion in [d]ecedent [Samuel's] gross estate shall be paid out of the Trusts' corpus before distribution, and the remainder shall be then distributed in accordance with the terms of Article Fourth of Minerva Lee's will." In essence, in his August 5, 2005 decision, the probate judge concluded that Minerva's bequests to her daughter, Betty MacDonald, and Betty's family were not to be reduced by the amount of taxes attributable to the QTIP trusts, and that the taxes were to be paid from the trust corpus before the distribution to the charities.

Appellant argues that "the probate court erred because it did not exonerate the charitable beneficiaries of the QTIP trusts from the federal estate taxes attributable to the QTIP trusts [under federal law]" and "because it did not exonerate the charitable beneficiaries of the QTIP trusts from the New Jersey estate taxes attributable to the QTIP trust in accordance with New Jersey case law."

I.

Samuel and Minerva Lee were married and had one child, David, who passed away in 1987. David was not married and had no children. In October 1998, Minerva adopted Betty MacDonald, who was the daughter of her deceased twin sister. Particularly after David's death, Betty and Minerva became very close. It is undisputed that "Betty provided the assistance and care Minerva and Sam required due to their advancing age [and that] Minerva was extremely grateful to Betty and wanted to ensure that this care would continue in the event Minerva predeceased Sam."*fn2

Minerva died on February 18, 1999, leaving a Last Will and Testament and a codicil, both dated November 23, 1998.*fn3 The will, which was admitted to probate on April 1, 1999, created the QTIP trusts. Article Third of Minerva's will directed that her residuary estate was to be divided into a "Spouse's Part Trust" and "Family Part Trust" for Samuel's benefit during his life. Minerva's will further provided the manner in which the QTIP trusts would be distributed after his death and for the payment of estate taxes.

Specifically, Article First of Minerva's will related to the payment of taxes on her estate. It provided:

(b) I direct that all estate, inheritance, transfer, legacy or succession taxes, including state and federal, which may be assessed or imposed upon the transfer of any property under this Will, or upon property which may be part of my taxable estate for the purpose of any said tax shall, in the event my husband, SAMUEL LEE, survives me, be paid out of the Family Part of my residuary estate, as hereinafter defined in Article THIRD, it being my intention that the Spouse's Part and any other property passing to my husband which is not included in my estate for federal estate tax purposes be exonerated to the greatest extent possible from payment of all said state or federal taxes. In the event my said husband, SAMUEL, does not survive me, said taxes shall be paid out of my residuary estate. Notwithstanding the foregoing, if any tax shall be payable at, after or with respect to my death, pursuant to Internal Revenue Code Section 2036 (as permitted under 2207B), Section 2041 or Section 2044 or Chapter 13 of the Internal Revenue Code of 1986, as amended, or corresponding provision under state law, no part of such tax shall be paid from my estate.

Any estate and other related taxes due at my death by virtue of any charitable remainder unitrust or any other trust created by me during my lifetime, shall be payable from my residuary estate. It is my intent that the secondary beneficiaries of such trust(s) shall not be liable for any of such taxes.

Article Third divided the residuary estate into two parts:

In the event my husband, SAMUEL, shall survive me, my entire residuary estate shall be divided into the following two parts:

The first such part, hereinafter called the "Spouse's Part," which shall constitute a pecuniary legacy and not a fractional share of my estate, shall be equal in value to that amount determined pursuant to Article TWELFTH of this Will.*fn4

The second such part, hereinafter called the "Family Part," shall consist of the remainder of my estate after the allocation of assets to the "Spouse's Part."

Each part was then placed in trust.

Article Fourth embodied the residuary estate. It provided:

Upon the death of my husband, SAMUEL, any balance of property remaining in the trusts being administered under paragraphs

(1) and (2) of Article THIRD, or in the event my said husband, SAMUEL, does not survive me, all the rest, residue and remainder of my estate, as the case may be, I give, ...


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