Home Transferred to Trust with Retained Interest Subject to NJ Inheritance Tax

A husband and wife transferred their home into an irrevocable trust, retaining the right to live in the home until the death of the survivor. At that time all of the assets of the trust would transfer to their niece. The lower New Jersey Tax Court held that the assets were subject to the state’s inheritance tax on the house’s full value because the couple kept a life interest in the home.  The niece could not enjoy the house until the couple had passed because of their retention.

The New Jersey Appellate Division recently issued its opinion in Estate of Van Riper v. Dir., Div. of Taxation, affirming the judgement of the lower court. The Estate argued that because each spouse only owned a half interest in the home at the time of the transfer to the trust, the assets should have only been taxed at half value.

The appeals court declined the argument on the grounds that the home was owned by the couple as tenants by the entirety. This reasoning was further supported by the fact that at the first spouse’s death no Inheritance Tax was paid on the property as it qualified as an exempt transfer from husband to wife under New Jersey law.

See Cole Schotz, Home Transferred to Trust with Retained Interest Subject to NJ Inheritance Tax, Lexology, October 29, 2018.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.