Case Name: IN THE MATTER OF THE ESTATE OF CLIFFORD H. SHIVERS, LATE OF GLOUCESTER COUNTY, NEW JERSEY
Court: New Jersey Superior Court, Appellate Division
Jurisdiction: New Jersey
Decision Date: 1969-04-01
Citations: 105 N.J. Super. 242
Docket Number: 
Parties: IN THE MATTER OF THE ESTATE OF CLIFFORD H. SHIVERS, LATE OF GLOUCESTER COUNTY, NEW JERSEY.
Judges: 
Reporter: New Jersey Superior Court Reports
Volume: 105
Pages: 242–253

Head Matter:
IN THE MATTER OF THE ESTATE OF CLIFFORD H. SHIVERS, LATE OF GLOUCESTER COUNTY, NEW JERSEY.
Superior Court of New Jersey Appellate Division
Argued February 17, 1969
Decided April 1, 1969.
Gonford, S. J. A. D., dissented in part.
Before Judges Coneoed, Kilkenny and Leonard.
Mr. David E. Crabtree argued the cause for appellant.
Mr. T. Robert ZochowsTti, Deputy Attorney General, argued the cause for respondent (Mr. Arthur J. 8ills, Attorney General of New Jersey, attorney; Mr. Stephen Slcillman, Deputy Attorney General, of counsel).

Opinion:
The opinion of the court was delivered by
Kilkenny, J. A. D.
This is an appeal from a final determination of the New Jersey Transfer Inheritance Tax Bureau fixing the amount of inheritance taxes payable by the Shivers Estate. The executor first challenges the propriety of including as part of the taxable estate, as gifts made in contemplation of death, certain substantial 1964 transfers made by decedent to his two daughters about one year before his death in 1965. The second issue involves the State's disallowance, as a deductible item, of the sum paid by the executor to the Federal Government on those transfers as a purported "debt" due under the Federal Gift Tax Act.
I
Decedent, a New Jersey domiciliary, died on June 21, 1965. On April 20, 1964 and June 25, 1964 lie transferred, without consideration, to his two daughters Katherine S. Halloek and Mary Ann S. Ziegler income tax-exempt municipal bonds having a market value of $298,606.50 as of the date of his death.
On April 20, 1964 approximately $14,200 was given in bonds to each daughter; on June 25, 1964 each daughter received about $134,500 in bonds. At the time of the transfers the bonds were worth $299,087.16.
The United States Internal Revenue Service and the New Jersey Inheritance Tax Bureau found that those transfers were made in contemplation of death. Both agencies treated the items as part of decedent's estate in calculating the amount of the federal estate tax and the New Jersey inheritance tax due from this estate.
There was substantial evidence supporting the administrative findings, in addition to the provision under our law that any transfer made as a gift within three years prior to decedent's death is deemed, in the absence of proof to the contrary, to have been made in contemplation of death and includible in decedent's estate, in calculating the amount of inheritance taxes payable to the State. N. J. 8. A. 54: 34^1 (c). The transfers in issue were concededly gifts.
[ 1, 2] Were they made "in contemplation of death"? The applicable criteria and standards to resolve this issue have been set forth recently in In re Lichtenstein, 52 N. J. 553, 569 (1968). The presumption that the gift within three years of death was made in contemplation of death places an obligation on the taxpayer to establish by a preponderance of the evidence that it was not in contemplation of death. It is sufficient for taxability to find an "impelling" motive to make the gift in lieu of testamentary disposition.
The executor claims that the transfers do not come within the "three years prior to death" rule because the decedent intended the gifts to be effective in 1957 when he first placed the initial group in a safe deposit box in a bank. The box was registered in the names of his two daughters, but it was also registered in his name as "Deputy." He was the only one to enter the box from June 7, 1957 to June 23, 1964. He kept the safe deposit box key. He clipped the coupons and retained the income which was deposited in his account. The box was surrendered on June 25, 1964. Significantly, it was on the last-mentioned date that actual delivery of the bonds was made to the daughters.
The deposit of bonds in the safe deposit box in 1957 did not legally effect a gift thereof at that time. Decedent retained control of them. See In re Posey, 89 N. J. Super. 293, 304 (Cty. Ct. 1965), affirmed 92 N. J. Super. 259 (App. Div. 1966). He negated any donative intent by clipping the coupons and retaining the income which he placed in his own account. There was, under the circumstances, no delivery to the donees in 1957. Hence, the estate's contention that the gift was made in 1957, rather than in 1964, lacks merit. The mere intent to make a gift inter vivos to be consummated in the future is legally insufficient. In re Dodge, 50 N. J. 192, 216 (1967).
There was substantial evidence to support the findings that those substantial transfers made by decedent to his two daughters only about a year before he died were gifts made in contemplation of death. Decedent's gifts to his two daughters in the prior years of his lifetime were relatively meager, considering his considerable possessions. Coneededly, there was no consideration paid for these bonds, which approximated $300,000 in value. They represented a material part of decedent's estate •— about 25% of a gross estate of $1,146,005.62. The net estate, including these transfers, was $1,052,910.34.
Decedent was 86 years old at the time of the transfers. He was 87 when he died a year later. The cause of his death was myocardial infarction due to arteriosclerotic heart disease. On April 20, 1964 he executed his last will and testa ment, and it was on that same day that he made some of the transfers. This is suggestive of his awareness of tax consequences, as is his substantial holdings of municipal income tax-free bonds.
The totality of the proofs, the presumption under N. J. S. A. 54:34r-1 (c) and the substantial evidence rule (cf. In re Public Service Electric and Gas Co., 35 N. J. 358, 376 (1961)), compel the conclusion that the transfers in issue were gifts made in contemplation of death and includible in decedent's estate for inheritance tax purposes.
II
We next consider the estate's claim that the unpaid federal gift tax liability for the 1964 transfers, paid by his executor after his death, was a legally due "debt" of the decedent owing at his death and, therefore, ail allowable deduction for Now Jersey transfer inheritance tax purposes under N. J. 8. A. 54:34—5(a).
Our Inheritance Tax Bureau had disallowed this item, which amounted to $53,368.39, on the ground that the Internal Revenue Service had also treated the transfers as gifts in contemplation of death and includible as assets of the estate for federal estate tax purposes. After computing the amount due under the Federal Estate Tax Act, the Internal Revenue Service gave the estate a "credit" against the amount due for federal estate taxes to the extent of the amount paid as a gift tax. In brief, the amount paid by the executor as a purported "gift tax" was regarded merely as a "down payment" on account of the federal estate taxes, which apply to gifts made in contemplation of death. Obviously, an estate would rather pay the lower gift tax upon such transfers made in contemplation of death than the higher federal estate tax.
N. J. 8. A. 54:34-5 enumerates the allowable deductions in computing our State's inheritance taxes. They include "debts" of a decedent owing at the time of his death. Sub division (e) expressly declares nondeductible "a federal estate tax." It provides:
"Transfer taxes paid or payable to other states or territories or the District of Columbia or foreign countries on any property the transfer of which is taxable hereunder [are allowable deductions], but the amount due or paid the government of the United States as a federal estate tax shall not he considered as an expense of administration and shall not he allowed as a deduction." (Emphasis ours)
The Internal Eevenne Code (36 U. S. C. A. §2012) states that if a gift is made and a gift tax is paid either by the decedent or his representative, and if that gift is determined to have been made in contemplation of death, that gift becomes part of the decedent's estate and the tax paid thereon is to be credited against the federal estate tax levied. This also applies to gift taxes unpaid at decedent's death. See Federal Estate Tax Regulation, §20.2012-1 (a).
In McGill v. Oklahoma Tax Commission, 258 P. 2d 1180, 1183 (Okla. Sup. Ct. 1953), it was held that gifts made in contemplation of death and, therefore, subject under the Federal Estate Tax Act to the payment of federal estate taxes, were subject to a contingent gift tax liability that disappeared upon the death of the donor. The gift tax could not be enforced against a decedent's estate after his death. Upon his death the tax on gifts in contemplation of death reappeared as an estate tax "and such a debt is not deductible" under Oklahoma's inheritance tax law.
In Smith v. Shaughnessy, 318 U. S. 176, 63 S. Ct. 545, 87 L. Ed. 690 (1943), it was pointed out that where a gift tax is paid on transfers in contemplation of death, it merely constitutes a "down payment" on the estate tax that is subsequently imposed on the transfers. As the court expressed it:
"Under the statute the gift tax amounts in some instances to a security, a form of down-payment on the estate tax which secures the eventual payment of the latter; it is in no sense double taxation (At p. 179, 63 S. Ct., at p. 547)
The federal gift and estate tax laws are closely related. "Congress has provided as its plan for integrating the estate and gift taxes this system of secured payment on gifts which will later be subject to the estate tax." (Ibid.)
The gift tax and the estate tax are not mutually exclusive in the case of a gift made in contemplation of death. The fact that a gift was made must be reported within the time fixed by the Gift Tax Law. Failure to do so subjects the donor to penalties, in the absence of a showing of excusable neglect. Here, report of the 1964 taxes should have been made by April 15, 1965. It was not filed until March 2, 1966, and then by the executor of the donor's estate. Because the report was 11 months overdue, penalties amounting to $12,949.65 were assessed against and paid by the estate. The executor sued in the United States District Court for the District of Hew Jersey for a refund of the $12,949.65 penalty, assessed for the delinquent filing of the federal gift tax return for the 1964 gifts. Eelief was denied upon the ground that the delinquent filing was due to willful neglect both by the donor and the executor. The court found the executor's excuse that it was "too busy" with other matters insufficient cause to avoid the obligation of timely filing. The attempt to find reasonable cause for the delay in the donor's physical and mental condition was found to be inadequate in the light of his timely filing of his income tax return, "legibly signed" by him.
The attorney for the estate has furnished us, after oral argument, with a copj'' of the District Court's opinion of October 4, 1968, dismissing the executor's suit for a refund of the penalty. The attorney advised paying the federal estate tax, which included in the return the 1964 gifts, and also paying the penalty for the delinquency in filing the gift tax return, and then seeking a refund. The executor now argues that the gift tax liability is a completely separate and independent liability as demonstrated by the fact that the above-mentioned penalty for a delinquent gift tax return was upheld by the District Court.
We do not subscribe to that argument. The penalty was for a willful neglect of filing the gift tax report within the time required by law. There is no obligation to pay the gift tax as a separate liability, in the case of gifts made in contemplation of death, when the same items are included in the federal estate tax return. If a gift tax on such gifts has been paid before the donor dies, it does not affect the computation of the federal estate tax, and the gifts in contemplation of death are includible as assets of the donor's estate and subject to federal estate tax. A gift tax paid on such gifts is a mere credit on account of the calculated federal estate tax. If the gift tax has not been paid, the estate simply receives no credit. In the final analysis, the tax paid, by whatever label is put on it by the executor, is the federal estate tax. Our law, as noted above, expressly states:
" the amount due or paid the government of the United States as a federal estate tam shall not be allowed as a deduction."
The determination of the Hew Jersey Inheritance Tax Bureau is affirmed.