Some retirement funds subject to NJ Estate Tax
Estate of Smith v. Director, N.J. Div. of Taxation
No. 015163-2013
Sept. 28, 2016 (Date Decided)
Judge Brennan
FOR PLAINTIFF: Matthew E. Moloshok (Hellring Lindeman Goldstein & Siegal, LLP, attorneys; David N. Narciso, on the briefs).
FOR DEFENDANT: Heather Anderson (Christopher S. Porrino, Attorney General of New Jersey, attorney).
Plaintiff, Estate of Phillip J. Smith, Deceased, Judith Heimer, Executor, challenged defendant, Director, Division of Taxation's imposition of inheritance tax on New Jersey's Alternate Benefit Program ("ABP") retirement benefits.
Phillip J. Smith died a widower on Oct. 5, 2010. His sister-in-law is the executrix of his estate and its primary beneficiary. At the time of his death, Smith's assets included $576,759.00 in ABP retirement benefits. Estate filed a New Jersey transfer inheritance tax return, in which it listed the ABP funds as a tax-exempt state pension. On audit, the Director determined that ABP proceeds are subject to New Jersey inheritance tax pursuant to N.J.S.A. 54:34-1(c). The Director issued an assessment of $92,282.00 in additional inheritance tax.
Estate argued that all state-sponsored and state-administered pension plan entitlements are not subject to inheritance tax and therefore the decedent's ABP funds are tax exempt.
The Director argued that all profit sharing and retirement plans, both public and private, are subject to inheritance tax unless the Legislature has provided an exemption. Although ABP was enacted in 1967 and amended in 1969, it was not included in the June 26, 1969, amendments to the statutory tax exemption clauses for the defined benefit retirement programs, TPAF, PERS, PFRS and SPRS.
Estate advanced that when the state's pension laws are read in pari materia, they reflect the legislative intent that all state-sponsored pension plans are not subject to inheritance tax. The court disagreed. The Legislature provided limited exemptions from the inheritance tax to the defined benefit retirement programs.
Estate argued that imposing inheritance tax on ABP benefits, and not on the defined benefit retirement programs, violates the Equal Protection Clause of the Fourteenth Amendment, as well as the "unalienable rights" provision of the New Jersey Constitution. However, the rational basis for not enacting tax exemptions for the ABP is found in the vesting differences between the two retirement systems. It is the ABP participant's ability and flexibility to move between public and private employment in higher education, both within and beyond the state, that distinguishes it from state's defined benefit programs.
New Jersey's ABP retirement proceeds are subject to New Jersey Inheritance Tax. The Legislature intended to provide tax exemptions only to the state's defined benefit retirement programs, PERS, TPAF, PFRS, SPRS and JRS, as is reflected by the specific exemption language in those statutes.
source http://www.njlawjournal.com/id=1202769837808/Estate-of-Smith-v-Director-NJ-Div-of-Taxation?slreturn=20161008205152
