IN THE MATTER ESTATE OF CATHERINE F. GOETSCHIUS

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1752-04T51752-04T5

IN THE MATTER OF THE

ESTATE OF CATHERINE F. GOETSCHIUS,

Decedent.

______________________________________

 

Submitted May 3, 2006 - Decided June 12, 2006

Before Judges Weissbard and Winkelstein

On appeal from Superior Court of New Jersey, Chancery Division, Passaic County, Docket No. 177051.

Bernstein & Marks, attorney for appellant

Jesse Amos (Robert A. Marks, on the brief).

John D. Pogorelec, attorney for respondent

Raymond F. Pohl.

PER CURIAM

Jesse Amos appeals from a Chancery Division order that required that he pay approximately $27,000 in federal and state taxes attributable to a bequest he had received under the will of Catherine F. Goetschius (Goetschius or testator). We reverse.

Goetschius died on February 7, 2000, at the age of 91. Her last will and testament, dated October 18, 1999, was admitted to probate on March 14, 2000.

Testator's gross estate was valued at more than $1.4 million dollars, of which only approximately $280,000 was considered probate assets. Raymond F. Pohl (Raymond), Goetschius's brother, was designated as the executor. Her will instructed that her estate was to be divided equally between Raymond, her sisters Helen Burdzy and Dorothy Pohl, and her nephew Douglas Amos.

Goetschius's estate consisted of nearly $725,000 in non-probate assets, including two savings accounts jointly held with Raymond, valued at nearly $200,000, a brokerage account jointly held with Raymond, and numerous CD accounts jointly held with other beneficiaries. Testator also had purchased four annuities, two of which listed Jesse Amos, testator's great-grandnephew, as the beneficiary. It is these two annuities that are at issue here.

The first, a flexible premium deferred variable annuity, was purchased by testator on February 4, 1993. The second, a single premium deferred annuity, was purchased on February 24, 1995. This second annuity initially designated the "estate" as the beneficiary, but by letter dated October 14, 1998, testator changed the beneficiary to Jesse Amos.

Jesse was thirteen-years old at the time of Goetschius's death; thus, testator's will appointed Douglas Amos, who is also Jesse's grandfather, to be the custodian and trustee of Jesse's funds under "a certain annuity which I have established with Lutheran Brotherhood." (Lutheran Brotherhood is now known as Thrivent Financial for Lutherans (Thrivent)).

These two annuities were to be paid to Jesse by Thrivent when he turned eighteen, which occurred on March 2, 2004. Thus, in the interim, Raymond, as executor, paid the federal and state estate taxes charged to the annuity from his own portion of the inheritance. Taxes were withheld from the distributive share of each beneficiary at the time of final distribution.

On April 30, 2001, Jesse, his mother Susan, and his grandfather, Douglas, signed an "Approval of Executor's Account," which waived a formal judicial accounting and approved the proposed distribution presented by Raymond. The proposed distribution provided for an accounting of testator's entire estate. According to the proposed distribution, Jesse's specific bequest was to be taxed a total of $27,060.12, covering both state and federal taxes.

Additionally, on that date, Jesse, Susan and Douglas signed a Power of Attorney and a Refunding Bond and Release. The Power of Attorney instructed the bank to draw a check for $27,060.12 made payable to Raymond for federal and state inheritance tax reimbursement. A guardian ad litem was not appointed for Jesse.

On February 25, 2004, days before Jesse's eighteenth birthday and the release of the annuities, Raymond made a demand upon Thrivent for reimbursement of the taxes paid on Jesse's behalf. Jesse did not consent to the reimbursement payment, and Thrivent thereafter filed an interpleader action in federal court.

Raymond filed a complaint in Superior Court on April 12, 2004, seeking reimbursement of the federal and state estate taxes due on the annuities, which he had paid. An order to show cause was signed on April 15 and Jesse filed his answer and counterclaim on August 5, 2004. In his answer, Jesse claimed that testator's will provided that all taxes should be paid out of the general estate.

By consent order entered on August 11, 2004, Thrivent dropped its federal suit. The amount in dispute was placed in escrow by Raymond's attorney. On that same date, Thrivent also was dismissed from the state suit.

Raymond's order to show cause was heard on August 13, 2004. The matter was carried to October 5, 2004 to allow Raymond to provide copies of the annuities for the court's review.

On that date, the Chancery judge entered judgment for Raymond, ordering Jesse to reimburse him the approximately $27,000 in inheritance taxes. Both sides' requests for counsel fees were denied. This appeal followed.

Jesse argues that he is not liable for state and federal inheritance taxes on the annuity because of the provision in the will providing that the payment of all estate taxes should come from testator's general estate. We agree.

The findings of a trial court, when sitting without a jury, are entitled to deference. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 483-84 (1974). However, the trial court's "interpretation of the law and the consequences that flow from established fact" are not entitled to any special deference. Manalapan Realty v. Twp. Comm. of Manalapan Twp., 140 N.J. 366, 378 (1995). Such is the case here.

It is not in dispute that annuities are part of the testator's gross estate, thus subjecting them to federal estate tax. 26 U.S.C.A. 2039. They also are subject to the state inheritance tax. N.J.S.A. 54:34-1(c); N.J.A.C. 18:26-5.19. See also Hagy v. Kelly, 135 N.J. Eq. 436, 441 (Prerog. Ct. 1944) (stating that, "The annuity contracts have had, as contemplated, the practical effect of reserving to the testator the enjoyment of all the funds invested and postponing the transfer of the economic benefits to another until after his death. Such a method of succession of money values is taxable."). The beneficiary of an annuity is subject to the inheritance tax payment, unless the testator expressly or impliedly expresses an intention that a legacy is to be paid free and clear of the inheritance tax. . . ." In re Estate of Kaegebehn, 16 N.J. Misc. 388, 390-91 (Orphans Ct. 1938).

Jesse argues that the second clause in testator's will provided that all estate taxes should be paid out of her estate, including the taxes associated with the annuities. That clause provides:

I order and direct that all my just debts, funeral and testamentary expenses and all estate and inheritance taxes be paid and satisfied as soon after my decease as conveniently can be. I direct that my estate and inheritance taxes be paid out of and charged against my general estate, including any taxes assessed against my property herein specifically devised or bequeathed, including the proceeds of any insurance policies on my life, whether payable to my estate or to a named beneficiary.

Jesse argues that it was decedent's probable intent for the taxes associated with the annuities to be paid directly from the general estate, despite the lack of specific language to that effect.

Under N.J.S.A. 3B:3-33.1(a):

The intention of a testator as expressed in his will controls the legal effect of his dispositions, and the rules of construction expressed in N.J.S.[A.] 3B:3-34 through N.J.S.[A.] 3B:3-48 shall apply unless the probable intention of the testator, as indicated by the will and relevant circumstances, is contrary.

Courts are charged with the responsibility of "ascertain[ing] and giv[ing] effect to the 'probable intention of the testator.'" In re Estate of Dawson, 136 N.J. 1, 9 (1994) (quoting Fidelity Union Trust Co. v. Robert, 36 N.J. 561, 564 (1962)); see also Danelczyk v. Tynek, 260 N.J. Super. 426, 428 (App. Div. 1992). The continued vitality of the probable intent doctrine was just recently reaffirmed. In re Estate of Theodore M Payne, 186 N.J. 324, 335 (2006).

"'[I]n ascertaining the subjective intent of the testator, courts will give primary emphasis to [the testator's] dominant plan and purpose as they appear from the entirety of [the] will when read and considered in the light of the surrounding facts and circumstances.'" In re Estate of Dawson, supra, 136 N.J. at 9 (quoting Fidelity Union Trust Co., supra, 36 N.J. at 564). Thus, the court will look primarily to the actual language of the will, "read and considered in light of the surrounding facts and circumstances." Danelczyk v. Tynek, supra, 260 N.J. Super. at 429 (citations omitted). A strictly literal reading of the text is unnecessary, as courts can and should consider extrinsic evidence. But that extrinsic evidence should be reviewed not "to vary the terms of the will, but rather it should be admitted first to show if there is an ambiguity and second, if one exists, to shed light on the testator's actual intent." Wilson v. Flowers, supra, 58 N.J. at 263; see also Payne, supra, 186 N.J. at 335. "While a court may not, of course, conjure up an interpretation or derive a missing testamentary provision out of the whole cloth, it may, on the basis of the entire will, competent extrinsic evidence and common human impulse strive reasonably to ascertain and carry out what the testator probably intended should be the disposition if the present situation developed." In re Estate of Burke, 48 N.J. 50, 64 (1966). In doing so, we should "ascribe to the testator 'those impulses which are common to human nature and . . . construe the will so as to effectuate those impulses.'" Payne, supra, 186 N.J. at 335 (quoting Fidelity Union, supra, 36 N.J. at 565 (citation omitted)).

Here, the trial court found that the testator did not intend to relieve Jesse from state and federal estate taxes, stating:

I've reviewed all of the documents that were submitted, and I requested documents from the agency that maintained this annuity. I've reviewed the case law.

I do not see anything specific in this paragraph that would stand for the position that you have argued for your client and that it was the intent of this decedent that all of the taxes on anything out there be paid by the estate. This was an asset that stood alone and which stood independent of the estate. The estate had no control and had no ability to exercise any control over the asset.

Under the cases, I just cannot find authority to require that the beneficiaries of the estate give back with regard to the tax burden.

As noted above, the tax payment clause of Goetschius's will expressly mentions taxes due on "the proceeds of any insurance policies on my life." This provision, in a will-executed only a few months before the testator's death, is curious since there was no life insurance to which the reference was applicable. On the other hand, the clause did not mention annuities, of which there were two, one of which was mentioned elsewhere in the will.

We do not find the mention of the one (life insurance) and the omission of the other (annuities) to be significant. Indeed, the mention of life insurance when there was none reinforces our conclusion that the clause was boilerplate and that it clearly manifested Goetschius's intention to have all taxes due on devises and bequests under the will "paid out of and charged against my general estate." In seeking the testator's probable intent, we simply cannot agree with the trial judge that Goetschius would have probably intended to have her great nephew's small inheritance depleted by approximately one-third for payment of taxes, when the four residual beneficiaries, whose inheritance comprised the great bulk of the estate, were spared that financial burden. If anything, the opposite would seem to be the case.

Like the trial judge, we also do not find the will ambiguous; however, we reach a diametrically opposite conclusion. As a result, we see no need to remand for a plenary hearing on probable intent. In light of our disposition, we remand for consideration of Jesse's claim for legal fees.

Reversed and remanded with directions that judgment be entered for defendant Jesse Amos requiring that taxes on his inheritance be paid out of testator's general estate.

 

Raymond, as executor, paid the federal and state inheritance taxes on behalf of all of the beneficiaries, and later was reimbursed.

(continued)

(continued)

10

A-1752-04T5

June 12, 2006