SENATE, No. 1633

STATE OF NEW JERSEY

INTRODUCED OCTOBER 28, 1996

By Senators CARDINALE and INVERSO

An Act providing that certain settlement agreements determine decedent transfers under the transfer inheritance tax, amending R.S.54:34-1.

    Be It Enacted by the Senate and General Assembly of the State of New Jersey:

    1. R.S.54:34-1 is amended to read as follows:

    54:34-1. Except as provided in section 54:34-4 of this Title, a tax shall be and is hereby imposed at the rates set forth in section 54:34-2 of this Title upon the transfer of property, real or personal, of the value of $500.00 or over, or of any interest therein or income therefrom, in trust or otherwise, to or for the use of any transferee, distributee or beneficiary in the following cases:

    a. Where real or tangible personal property situated in this State or intangible personal property wherever situated is transferred by will or by the intestate laws of this State from a resident of this State dying seized or possessed thereof.

    b. Where real or tangible personal property within this State of a decedent not a resident of this State at the time of his death is transferred by will or intestate law.

    c. Where real or tangible personal property within this State of a resident of this State or intangible personal property wherever situate of a resident of this State or real or tangible personal property within this State of a nonresident, is transferred by deed, grant, bargain, sale or gift made in contemplation of the death of the grantor, vendor or donor, or intended to take effect in possession or enjoyment at or after such death.

    A transfer by deed, grant, bargain, sale or gift made without adequate valuable consideration and within three years prior to the death of the grantor, vendor or donor of a material part of his estate or in the nature of a final disposition or distribution thereof, shall, in the absence of proof to the contrary, be deemed to have been made in contemplation of death within the meaning of subsection c. of this section; but no such transfer made prior to such three-year period shall be deemed or held to have been made in contemplation of death.

    d. Where by transfer of a resident decedent of real or tangible personal property within this State or intangible property wherever situate, or by transfer of a nonresident decedent of real or tangible personal property within this State, a transferee, distributee or beneficiary comes into the possession or enjoyment therein of:

    (1) An estate in expectancy of any kind or character which is contingent or defeasible, transferred by an instrument taking effect on or after July 4, 1909; or

    (2) Property transferred pursuant to a power of appointment contained in an instrument taking effect on or after July 4, 1909.

    e. When a decedent appoints or names one or more executors or trustees and bequeaths or devises property to him or them in lieu of commissions or allowances, the transfer of which property would otherwise be taxable, or appoints him or them his residuary legatee or legatees, and the bequest, devise or residuary legacy exceeds what would be reasonable compensation for his or their services, such excess shall be deemed a transfer liable to tax. The Superior Court having jurisdiction in the case, shall determine what is a reasonable compensation.

    f. The right of the surviving joint tenant or joint tenants, person or persons, to the immediate ownership or possession and enjoyment of real or personal property held in the joint names of two or more persons, or deposited in banks or other institutions or depositories in the joint names of two or more persons and payable to either or the survivor, excluding, however, the right of a spouse, as a surviving joint tenant with his or her deceased spouse, to the immediate ownership or possession and enjoyment of a membership certificate or stock in a cooperative housing corporation, the ownership of which entitles such member or stockholder to occupy real estate for dwelling purposes as the principal residence of the decedent and spouse, shall upon the death of one of such persons, be deemed a transfer taxable in the same manner as though such property had belonged absolutely to the deceased joint tenant or joint depositor and had been devised or bequeathed by his will to the surviving joint tenant or joint tenants, person or persons, excepting therefrom such part of the property as such survivor or survivors may prove to the satisfaction of the Director of the Division of Taxation to have originally belonged to him or them and never to have belonged to the decedent.

    In the case of a nonresident decedent, this subsection [f. of this section] shall apply only to real or tangible personal property within this State.

    g. For the purposes of this section, a transfer pursuant to a settlement agreement incorporated into a consent judgment shall be deemed to be a transfer by will.

(cf: P.L.1991, c.91, s.510).

    2. This act shall take effect immediately and apply to transfers of property on or after enactment.

STATEMENT

    This bill gives a will contest settlement agreement the same effect as a will for purposes of the transfer inheritance tax if the agreement is incorporated into a consent judgement.

    The New Jersey transfer inheritance tax is imposed on the recipients of decedent transfers. Recipients are divided into categories based on their relationship to the decedent, and each category is taxed pursuant to its own marginal rate scale and exemptions. Transfers to charity or to close lineal relatives are exempt from tax; transfers to distant relatives or unrelated parties may be taxed at rates of up to 16 percent.

    Currently, the tax is assessed based on strict compliance with the recipients named under the will. Under the current law, a settlement of a will contest directing distributions different from those in the will, even though memorialized in a consent judgement, is disregarded for taxation purposes. This can have significant tax impact if a settlement provides that property that would otherwise go to a charity will instead go to a nonlineal relative of the decedent.

    This bill will assure that the taxation of decedent transfers will give due regard to what may be a heavily negotiated good faith settlement incorporated into a consent judgement in a will contest.

Provides certain settlement agreements determine decedent transfers under transfer inheritance tax.