Monday, November 12, 2012

Estate planning practitioners have long focused on the estate tax cost of a premature death in terms of the potential increase in estate tax. Now, litigation practitioners are focusing on it, as well.

In Beim v. Hulfish, Docket #A-5947-10T4 (Superior Ct. NJ, 5/29/2012), the plaintiffs succeeded in being able to assert this additional estate tax cost as an additional measure of damages in their wrongful death claim.

John Kellogg was age 97 in January of 2008 when he was involved as a passenger in an auto accident that resulted in his death, and led to the filing of this wrongful death action. As a result of his death in 2008 (when the estate tax exemption was $2 million), the Kellogg estate was required to pay almost $1.2 Million in estate tax, at least half of which would not have been payable if he had died in 2009 (when the estate tax exemption increased to $3.5 million) and all of which would not have been payable had he died in 2010 (when the estate tax exemption was increased to $5 million).

In their wrongful death action, plaintiffs sought to present evidence of the pecuniary loss resulting from the estate tax payable by Kellogg’s estate in 2008 compared with what would have been payable had he lived out his life expectancy, leaving it up to the jury to determine the year in which he would have died, based on expert mortality testimony.

Even though the Court found that Kellogg could have died in any year prior to 2013, and even though at the time of death in 2008 the estate tax applicable in 2011 and 2012 was not yet determined until well after the wrongful death action was filed, the Court ruled that the estate tax differential was not too speculative for the necessary standard to determine damages in a wrongful death action in New Jersey:  Could a jury determine the pecuniary injury stemming from the “deprivation of a reasonable expectation of a pecuniary advantage which would have resulted by a continuance of the life of the deceased”?

The Court rejected cases from New York, Illinois, and Florida that considered this same issue, on the basis that the jurisprudence had developed differently in those states than in New Jersey, or that the wrongful death statute of New Jersey differed from that in those states. Surprisingly, the Court did not find a determination of future estate tax liability after the end of 2010 too speculative (even though all practitioners were surprised by the scope of the tax law changes enacted on December 17, 2010) for a jury to decide, presumably because that Court did not limit the recovery under the wrongful death statute to known facts as of the date of the accident and death, and would permit proof of what the estate tax liability would have been under the law enacted at the end of 2010.

This case may only be applicable in New Jersey, where the courts have a rather expansive view of the pecuniary liability under its wrongful death statute that differs from the only three other states considering the issue. One wonders what the New Jersey courts would do with this issue if the estate tax law were to revert to the pre-2001 applicable exclusion and rate levels.

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