On appeal from the Superior Court of New Jersey, Chancery Division, Mercer County, Docket No. 94-00763.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges R. B. Coleman and Lihotz.
In this probate matter we are asked to examine the interplay between the estate tax provisions in the Internal Revenue Code (IRC) and state provisions governing testamentary intent. The estate of Sylvia Stark, represented by her executor Thelia Taytelbaum (plaintiff), sought reimbursement from Albert Stark and Joan Foster (defendants) of federal and state estate taxes the estate paid upon the death of decedent Sylvia Stark, who had an interest in a qualified terminable interest property (QTIP) trust pursuant to terms of the testamentary trust of her husband, defendants' father, Sidney Stark.*fn1 Upon Sylvia's death, defendants received the remainder of assets in the QTIP trust as its residuary beneficiaries; however, Sylvia's estate was required to pay estate taxes on the transfer of these assets to defendants at her death.
Defendants opposed plaintiff's request for reimbursement of the taxes attributable to the QTIP assets, relying on a clause in Sidney's will. The provision stated that if Sylvia died within three years after Sidney's death, the QTIP trust would be responsible for any estate taxes resulting from the inclusion of the trust in her estate. Sylvia died seven years after Sidney. Therefore, defendants argue the implication of the terms of Sidney's will is that Sylvia accepted the obligation to pay the taxes.
The parties stipulated the facts. On the parties' cross-motions for summary judgment, Judge Maria Sypek entered judgment for plaintiff and ordered defendants to reimburse plaintiff for all of the federal and a portion of the New Jersey estate taxes attributable to the QTIP trust's assets. On appeal, defendants argue the court erred in interpreting the tax payment clause in Sidney's will, asserting the QTIP trust assets would be used to pay estate taxes only if she died within three years of Sidney's death. Following our review, we concur with the legal decision of Judge Sypek and affirm.
We provide an overview of the facts stipulated by the parties. Sylvia and Sidney had each been previously married and had children; Sylvia had only one child, Taytelbaum, and Sidney had two children, defendants. In contemplation of their impending marriage, Sylvia and Sidney executed a prenuptial agreement in which Sidney agreed to provide for Sylvia in the event of his death. Specifically, she would be permitted to reside in a New Jersey condominium, the expenses for which would be paid by his estate. Sylvia and Sidney agreed to waive their respective interests in the event of the other's death, including any elective share.
Sylvia executed a will on August 11, 1983. Her will reiterated the agreement she and Sidney reached in their prenuptial agreement, stating:
I purposely make no provisions herein for my husband, SIDNEY STARK, since he and I entered into an Ante-Nuptial Agreement dated June 8, 1983, at which time it was understood between us that no part of my separate property, owned by me prior to our marriage, or acquired thereafter with the proceeds of the sale thereof, or by inheritance, would be claimed by him during my lifetime or upon my death.
Sylvia's entire estate was left to Taytelbaum.
Sidney executed a will in 1984. The document complied with the prenuptial agreement and also included a testamentary trust for Sylvia. On August 12, 1992, Sidney revoked this will and executed the will document that was probated by defendants as co-executors, upon Sidney's death. Under the terms of this new will, Sylvia's interests varied from those of its predecessor.
In compliance with the parties' prenuptial agreement, Sylvia was given the right to occupy the New Jersey condominium for life, use its contents and an automobile. Defendants were responsible to directly pay all costs of maintaining the condominium and title passed to them, as part of Sidney's residuary estate, at Sylvia's death.
Sidney also chose to utilize a QTIP trust, funded with $400,000 plus a Florida condominium he owned, which was worth $107,000. New Jersey National Bank, which later became Corestates Bank, was designated as trustee. The trust terms required that all net trust income must be distributed to Sylvia in quarterly installments up to the date of her death. Further, the trustee was to pay for the maintenance expenses of the Florida condominium and was given sole discretion to distribute principal sums to Sylvia for her health, maintenance and support. At Sylvia's death, the residue of the QTIP trust was distributed to defendants.
The provision of Sidney's will creating the QTIP trust also contained tax clauses that defendants believe control the disposition of the questions presented. Article One, Section F stated:
5. Unless SYLVIA directs otherwise by Will, if SYLVIA dies within three (3) years after the date of my death, the Trustee shall first pay from the principal of this Trust, directly or to the legal representative of SYLVIA's estate as the Trustee considers advisable, the amount by which the estate and inheritance taxes (including related interest or penalties) assessed by reason of SYLVIA's death shall be increased as a result of the inclusion of this Trust in SYLVIA's estate for such tax purposes.
7. If the effect of any provision of this Trust, or any power granted to the Trustee would be to prevent the allowance of said marital deduction with respect to the assets which comprise this Trust, then I direct that such offending provision or power shall not apply to the assets which comprise this Trust and that as far as this Trust and its administration is concerned, ...