The New Jersey Tax Court recently released its opinion in Estate of Ruth Oberg, NJ Tax Court, Docket No 000240 (October 24, 2017), upholding the Division of Taxation’s assessment of additional New Jersey estate tax. The case provides some important reminders about doing proper estate planning.
The estate in this case had a date of death value of $3.1 million and an alternate valuation date value of $2.1 million. The estate claimed the alternate valuation date on its New Jersey estate tax return. Unfortunately for the estate, however, the return was filed almost four years after the decedent’s death. The judge agreed with the Division of Taxation that the return was filed too late to be able to claim the alternate valuation date.
The decedent also had made an undocumented loan to her daughter. The estate claimed that the loan was a self-cancelling installment note (“SCIN”) and therefore was cancelled at death. The court, emphasizing the difficulties of proving that an undocumented loan was actually a SCIN, found that the decedent had an interest in the loan at her death, and it was includible in her estate. The court also found that the Division of Taxation was not bound by the IRS closing letter issued in the estate where the federal estate tax return was accepted as filed.
This is a classic “failure to plan” case. If the decedent had properly documented the loan, and if the estate tax return had been filed on time, the additional estate tax assessed in the case could have been avoided.