Opinion
DOCKET NO. A-5500-14T4
09-30-2016
CHRISTINE RIEDL, Executor of the Estate of Christopher C. Economaki, Plaintiff-Appellant, v. CORINNE ECONOMAKI, Defendant-Respondent.
Cuccio and Cuccio, P.C., attorneys for appellant (Emil S. Cuccio, of counsel and on the brief). Walsh & Walsh, attorneys for respondent (John K. Walsh, Jr., of counsel and on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is only binding on the parties in the case and its use in other cases is limited. R.1:36-3. Before Judges Yannotti, Fasciale and Kennedy. On appeal from Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-194-14. Cuccio and Cuccio, P.C., attorneys for appellant (Emil S. Cuccio, of counsel and on the brief). Walsh & Walsh, attorneys for respondent (John K. Walsh, Jr., of counsel and on the brief). PER CURIAM
Plaintiff, Christine Riedl (Christine), a daughter and the sole Executor of the Estate of Christopher C. Economaki (decedent), appeals from a June 26, 2015 order granting summary judgment to decedent's other daughter, defendant Corinne Economaki (Corinne). We affirm.
We mean no disrespect by using the first names for the daughters.
Decedent died testate on September 28, 2012. This dispute arose between his two daughters over the payment of estate, inheritance, and gift taxes. Because the estate was illiquid, Christine, as sole executor and trustee, asked Corinne, as an estate beneficiary, to pay her share of the taxes. Unsatisfied with Corinne's contribution, Christine filed suit seeking $82,024, which Christine alleged constituted an underpayment.
Corinne alleged that Christine breached her fiduciary duty by failing to identify and collect all estate assets. She further alleged that Christine canceled a $215,000 debt that Christine owed to the decedent. Corinne denied responsibility for the alleged underpayment, and maintained that Christine's self-dealing contributed to the estate's illiquidity.
Decedent amassed millions of dollars in assets throughout his career. His wife predeceased him. In 2008, decedent began gifting substantial monies to his four beneficiaries: Christine, her two children, and Corinne. These inter vivos gifts considerably reduced the size of his estate.
Article Four of decedent's Last Will and Testament granted decedent's membership interests in Kay Publishing, L.L.C., to Corinne. Because decedent gave that interest to Corinne during his lifetime, the bequest lapsed. Decedent had never paid the attendant $36,404 federal gift tax.
Article Five of the Will provides that the estate's remainder shall pour over into the Trust. Article Six states that decedent "made provision for the payment of estate, transfer, inheritance, succession and other death taxes and duties" in the accompanying Trust agreement.
Article Four of the Trust agreement provides:
Upon the Grantor's death, the Trustees shall pay out of the income and principal distributable under this Trust Agreement, all of the Grantor's funeral expenses, the Grantor's lawful debts, the taxes imposed by reason of the Grantor's death, and the expenses of administering the Grantor's estate, in the matter directed in Article [Ten].
Article Ten provides:
Payment of Taxes. (1) Pursuant to Article [Four], the Trustees shall pay to the Executor of the Grantor's estate, out of the property held in trust hereunder, and without apportionment or proration, and without any right of reimbursement from the Executor or from any other person interested in the Grantor's estate, such amount as the Executor shall certify is required to provide for the payment of all estate,
inheritance, transfer and other death taxes and duties, and any interest or penalties thereon . . . payable by reason of the Grantor's death on (i) property which is disposed of pursuant to the provisions of the Grantor's Last Will and Testament, (ii) property which is disposed of pursuant to the provisions of this Trust Agreement, (iii) qualified plan benefits which pass outside both the Grantor's Last Will and this Trust Agreement, and (iv) property included in the Grantor's estate under Section 2044 of the Code . . . .
(2) All such payments shall be paid out of the property disposed of under Article [Five], without any right of recovery or contribution under Section 2207A of the Code.
. . . .
Payment of Claims and Administrative Expenses. Pursuant to Article [Four], the Trustees shall pay to the Executor of the Grantor's estate, out of the property held in trust hereunder, and without any right of reimbursement from the Executor or from any other person interested in the Grantor's estate, such amount as the Executor shall certify is required to provide for the payment, in full, of all of the Grantor's debts, funeral expenses, and the administration expenses of the Grantor's estate.
As to the distribution of assets, Article Five, Section A of the Trust agreement grants $215,000 to Christine off the top, "to offset the annuity sum previously received" by Corinne. Per Article Five, Section C, the balance of the Trust property is to be distributed in proportionate shares: forty percent to Christine; forty percent to Corinne; and ten percent each to Christine's two children.
Decedent's estate consisted of the following assets: an IRA account, in the amount of $21,855.16; an annuity with designated beneficiaries, in the amount of $4,292,800; and "various modest life insurance policies and death benefits" with designated beneficiaries.
Christine distributed the IRA to the beneficiaries in proportionate shares before paying any taxes. The remaining non-probate assets did not pass through the estate, but were included therein for tax purposes. From the annuity alone, Christine and Corinne each received $1,717,120, and Christine's children each received $429,280.
Christine's accountant estimated that the estate, gift, and inheritance taxes owed on the gross estate equaled $1,829,955. Because of the estate's illiquidity, Christine determined that each beneficiary should pay a proportionate share of the taxes, with Christine and Corinne responsible for $731,982 each, and Christine's children responsible for $182,995.50 each. However, Corinne rejected Christine's estimate, and opted to pay $82,024 less than what Christine sought.
The disagreement between Christine and Corinne stems primarily from Christine's decision to cancel a $215,000 promissory note (Note) she owed to decedent. In April 2010, decedent had loaned Christine $215,000 to assist with her family's business. Christine signed a Note, which indicates that she would repay the balance of the loan, plus interest, by April 26, 2015.
After decedent passed away, Christine's husband, an attorney, requested that the Note be extinguished. Although Christine paid $14,057.10 in interest due into the estate, she claimed the Note's principal balance was effectively "paid in full" because she "waived" the $215,000 bequest made to her in Article Five, Section A of the Trust agreement. Because plaintiff never repaid the principal into the Trust, Corinne thought that Christine's tax liability figures were erroneous.
Christine filed an order to show cause and verified complaint seeking to enjoin Corinne from interfering with the estate's administration; for payment of $82,024 to equalize the estate tax payments made by other beneficiaries; to declare defendant liable for her pro rata share of any additional estate or gift taxes; and for other relief.
By January 2015, following an extension of time, all taxes, including the gift tax, were paid in full and the estate was closed out. In the end, Christine contributed $805,829, her children each contributed $201,457, and Corinne contributed $649,958.
Christine filed a motion for summary judgment, and Corinne cross-moved for summary judgment. Corinne's attorney submitted a certification disputing Christine's assessment of Corinne's personal liability for the estate and gift taxes. He certified that Christine's calculations failed to account for Christine's obligation to repay the Note and ignored the clear language contained in the Will and Trust agreement. The court granted Corinne's cross-motion, dismissed the complaint, and issued a supplemental opinion pursuant to Rule 2:5-1(b).
On appeal, Christine contends the court erred as a matter of law in granting defendant's cross-motion for summary judgment. She cites N.J.S.A. 3B:24-2, New Jersey's apportionment statute, along with general principles of equity, to support her theory of recovery. In addition, for the first time on appeal, she claims that decedent intended the Note to be a gift, not a loan. She also argues that Corinne, as donee, is personally liable for the gift tax on the transfer of the interest in Kay Publishing L.L.C. Finally, she contends the court erroneously relied upon the attorney certification because it contains a net opinion.
Summary judgment must be granted if the pleadings and affidavits "show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2. We use the same standard when considering whether the trial court properly granted summary judgment. Henry v. N.J. Dep't of Human Servs., 204 N.J. 320, 330 (2010). If no genuine issues of fact exist, then we must determine whether the trial court's ruling on the law was correct. Ibid.
Here, the court ruled that Christine should have repaid the Note's principal balance into the estate, and that Christine's decision to satisfy that debt through waiver of the $215,000 bequest resulted in a windfall, contrary to the Trust's provisions. The court further found that Article Ten of the Trust required payment of all taxes due out of the Trust property, including the gift tax; and had plaintiff repaid the Note, the gift tax would have been covered by those funds. As to Christine's contention that the attorney certification was inadmissible because he was "not an expert in forensic accounting," the court disagreed because this matter "does not require complex accounting calculations or the application of a large quantity of the tax code."
Because no genuine issues of material fact existed as to the total estate and gift taxes due, the status of the Note, or the attorney certification, the court appropriately granted defendant's cross-motion for summary judgment as a matter of law.
The court denied summary judgment requests on other issues involving a copyright interest, bearer bonds, and a Chase checking account because material facts were in dispute. Those issues are not relevant on appeal and will not be discussed herein. --------
We begin by addressing Christine's contention that N.J.S.A. 3B:24-2, coupled with principles of equity, dictate the outcome of this matter. We must first address two key assumptions on which Christine's theory of recovery is premised.
First, Christine mistakenly assumes that an executor has a right or duty to collect money from estate beneficiaries, should an estate become illiquid, to pay estate taxes due. 26 U.S.C.A. § 2002 imposes the responsibility to pay estate taxes on the executor, not the beneficiaries, "regardless of the fact that the gross estate consists in part of property which does not come within the possession of the executor or administrator." 26 C.F.R. § 20.2002-1. Neither the tax code nor the regulations grant an executor authority to seek estate tax payments from beneficiaries out of non-probate assets, such as the substantial annuity payouts in this case.
That said, plaintiff's next assumption, i.e., that a beneficiary is required to relinquish whatever monies the executor requests for payment of estate taxes, is also misplaced. If the executor does not pay estate taxes due, 26 U.S.C.A. § 6324 and 26 C.F.R. § 301.6324-1 allow the taxing authority to impose a special lien upon the gross estate and institute collection proceedings. The tax code further permits the executor to file an "offer to compromise," which could potentially decrease the monies owed. 26 C.F.R. § 301.7122-1. Ultimately, estate beneficiaries who receive non-probate assets can be held responsible by the Internal Revenue Service (IRS) for estate tax payments. 26 U.S.C.A. § 6324; 26 C.F.R. § 301.6324-1. However, the authority to collect those payments rests solely with the IRS, not the executor.
To the extent plaintiff relies upon N.J.S.A. 3B:24-2, that statute bears no relevance here, and the court properly declined to apply it. N.J.S.A. 3B:24-2 directs apportionment of estate tax liability among transferees "except in a case where a testator otherwise directs in his will." Here, decedent's Will and Trust agreement directed payment of all "taxes imposed by reason of the Grantor's death" out of the Trust, "without apportionment or proration, and without any right of reimbursement from the Executor or from any other person interested in the Grantor's estate." Thus, N.J.S.A. 3B:24-2 is inapplicable, despite the estate's illiquidity. In re Estate of Cole, 200 N.J. Super. 396, 411 (Ch. Div. 1984).
Finally, with regard to Christine's equitable arguments for recovery of tax payments, administrative costs, and attorney's fees, "decisions in equity are controlled by the doctrine of 'unclean hands,'" Marino v. Marino, 200 N.J. 315, 345 (2009), which "gives expression to the equitable principle that a court should not grant relief to one who is a wrongdoer with respect to the subject matter in suit." Faustin v. Lewis, 85 N.J. 507, 511 (1981). Christine's failure to repay the Note constituted a breach of fiduciary duty that contributed to the estate's illiquidity. Therefore, we reject her equitable arguments.
Christine argues that her waiver of the $215,000 bequest to offset the Note's principal amount did not constitute a breach of fiduciary duty because decedent intended the Note to be an "advance of her bequest." To support her claim, she invokes the doctrine of probable intent for the first time on appeal.
Initially, executors have "a non-delegable duty to collect and preserve the estate assets." In re Estate of Mild, 25 N.J. 467, 481 (1957). They are required to settle and distribute the estate, in accordance with the testamentary instruments, "as expeditiously and efficiently as is consistent with the best interests of the estate." N.J.S.A. 3B:10-23.
In determining that Christine breached her fiduciary duty, the court explained:
Here, instead of repaying the Estate the $215,000 promissory note, [Christine] disclaimed a devise that was worth the exact same amount, effectively canceling the note. Although [Christine] paid back the interest on the note, [Christine]'s method of calculating the Estate property [that] poured over into the Trust was improper. [Christine] had a fiduciary duty to collect the note first, then pay the claims against the Estate, including the taxes, before making any distributions. She effectively made a distribution to herself before even collecting all of the assets.
Christine breached her fiduciary duty as executor, and instead acted in her own best interest, when she failed to collect the Note's principal balance. Had she repaid the Note, instead of waiving the $215,000 bequest in exchange for its cancellation, that cash would have been available to pay a portion of the taxes due in accordance with Articles Four and Ten of the Trust. See Semler v. Corestates Bank, 301 N.J. Super. 164, 183 (App. Div.) (where estate was illiquid with taxes owed, corporate fiduciary breached its fiduciary duty by failing to collect a debt owed to the decedent by a family member), certif. denied, 151 N.J. 467 (1997).
Contrary to Christine's assertions, her undisputed failure to collect the debt on behalf of the estate cannot be excused by the doctrine of probable intent. Courts invoke this doctrine during will contests to ascertain a testator's intent when the testamentary documents at issue are ambiguous. Fid. Union Tr. Co. v. Robert, 36 N.J. 561, 564-65 (1962). Here, the pertinent language contained in the Note, the Will, and the Trust agreement is clear and unambiguous, and the doctrine of probable intent is inapplicable. In re Estate of Gabrellian, 372 N.J. Super. 432, 443 (App. Div. 2004) (holding doctrine of probable intent inapplicable where "documents are clear on their face and there is no failure of any bequest or provision"), certif. denied, 182 N.J. 430 (2005).
The Note itself proves that decedent intended this transaction to be a loan, not a gift. Its plain language clearly requires Christine to repay the $215,000 principal amount, plus 2.7% interest, no later than April 26, 2015. Similarly, decedent's letter to Merrill Lynch regarding the disbursement reads: "As you are aware, it is my wish to provide a loan to my daughter, [Christine] Riedl, in order to assist her and her family in their family business, Midland Abstract."
Consequently, Christine's characterization of the Note as "an advance of her bequest," allegedly intended by decedent to equalize monies previously received by Corinne, is without merit. Ignoring the Note's plain language, Christine instead cites Article Five, Section A of the Trust agreement, which bequeaths her $215,000, "to offset the annuity sum previously received" by Corinne. She claims that repayment of the Note runs contrary to decedent's intent "to ensure equalization of his estate" since Christine would then benefit by paying a lesser pro rata share of estate taxes.
Despite Christine's efforts to merge the two, the Note and the bequest are two separate transactions. Decedent's intent as to each is clear on its face. While decedent clearly intended the $215,000 bequest to offset monies previously received by Corinne, he also clearly intended the loan to assist with Christine's family business, Midland Abstract. In other words, there is nothing to construe here, and Christine's reliance upon the doctrine of probable intent is misplaced. Article Five, Section A cannot reasonably be interpreted to render the Note meaningless and nullify Christine's obligation to repay the principal. Finally, Christine cites no legal authority that would support such a result.
As to the gift tax, Christine contends that the equities require Corinne to reimburse her for payment of the gift tax. The IRS imposes a gift tax payable by the donor in the calendar year that the gift was made. 26 U.S.C.A. § 2501(a)(1); 26 U.S.C.A. § 2502(c). The corresponding regulations provide: "If the donor dies before the tax is paid the amount of the tax is a debt due the United States from the decedent's estate and his executor or administrator is responsible for its payment out of the estate." 26 C.F.R. § 25.2502-2. If unpaid, the gift tax becomes a lien on the gift and the IRS can attempt to collect it from the donee. 26 U.S.C.A. § 6324(b); Poinier v. Comm'r, 858 F.2d 917, 919-20 (3d Cir. 1988), cert. denied, 490 U.S. 1019, 109 S. Ct. 1743, 104 L. Ed. 2d 180 (1989).
The court determined that "Article [Ten] of the Trust provides for the payment of all taxes due," including the gift tax. However, Christine contends that Article Ten covers only those taxes "payable by reason of the Grantor's death" on property disposed of under the Will, the Trust, qualified plan benefits, or qualified terminable interest property. Because the gift was given to Corinne during decedent's lifetime, Christine argues that Article Ten's tax language does not apply.
While it is true that the Kay Publishing interest was an inter vivos gift, the Trust agreement contains language concerning payment of lawful debts which can be relied upon in concert with 26 U.S.C.A. § 2502(c) and 26 C.F.R. § 25.2502-2 to require payment of the gift tax from the Trust. Article Four provides that "the [t]rustees shall pay out of the income and principal distributable under this Trust Agreement, all of the Grantor's . . . lawful debts . . . [and] taxes imposed by reason of the Grantor's death." Article Ten reiterates that all of the Grantor's debts shall be paid out of the Trust, "without any right of reimbursement." Because decedent failed to pay the gift tax, it became a debt due to the United States after he died, payable by the executor. 26 C.F.R. § 25.2502-2.
Had Christine repaid the Note, as discussed in Section B, that money could have been utilized to pay the $36,404 gift tax out of the Trust as intended. Regardless, the IRS's statutory right to collect an unpaid gift tax from a donee should not be interpreted to grant an executor that same right to reimbursement, especially when the controlling testamentary instruments state otherwise.
As to the attorney certification, we reject Christine's contention that the court should have excluded the certification because it contained net opinion.
The net opinion rule, a corollary of N.J.R.E. 703, "forbids the admission into evidence of an expert's conclusions that are not supported by factual evidence or other data." State v. Townsend, 186 N.J. 473, 494 (2006). The court explained its rejection of Christine's argument as follows:
The allegations in Mr. Walsh's certification amount to [Corinne]'s legal argument about the case. This argument does not require complex accounting calculations or the application of a large quantity of the tax code. This matter is about four assets and their respective value, and their impact on whether the Trust or the beneficiaries are responsible to pay the estate and gift taxes. To give [Christine]'s argument
credence would be to require all New Jersey attorneys to obtain certification in trust and estate litigation and tax expertise in order to permit them to work on estate matters.
As Corinne's attorney, he is entitled to submit a supporting certification, in connection with Corinne's cross-motion for summary judgment. R. 4:46-1. He was never qualified as an expert, nor does he purport to be an expert. His certification did not set forth expert opinion. Instead, it contained legal argument in opposition to Christine's estimated pro rata estate tax liability calculations in light of Christine's failure to repay the Note and the clear language contained in the Will and Trust agreement. To make legal arguments in a supporting certification, Corinne's attorney is not required to have "any particular training or expertise in the areas of testamentary or inter vivos trusts, gift tax, or estate administration," as Christine claims.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION