In Re Estate of Cole
200 N.J. Super. 396, 491 A.2d 770 (1984)
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Rule of Law:
A surviving spouse who takes an elective share is entitled to a fractional portion of the estate, which means they share in the gains, losses, and income of the undistributed residuary assets until distribution. The elective share will pass free of estate and inheritance taxes if the decedent's will contains a tax apportionment clause directing all taxes to be paid from the residuary estate.
Facts:
- Nathaniel B. Cole died in 1981, survived by his widow, Bernice Cole, and two adult daughters.
- Cole had married Bernice Cole in the months preceding his death.
- His will gave Bernice Cole one-half of his tangible personal goods, a home, and 10% of the shares in a real estate holding company.
- The bulk of the estate was placed into residuary trusts for each of his daughters.
- The will contained a tax clause ordering the executor to pay all inheritance, succession, transfer, and estate taxes from the residuary estate.
Procedural Posture:
- One of the decedent's daughters filed suit in the Superior Court, Chancery Division against her sister, the estate, and family-owned business entities, alleging mismanagement.
- The widow, Bernice Cole, was joined as a defendant in that suit.
- A separate action was filed in the Probate Division challenging the validity of the decedent's will and his marriage to Bernice Cole.
- The Probate Division admitted the will to probate and upheld the marriage.
- Bernice Cole then timely filed a complaint to take her statutory elective share of the estate under N.J.S.A. 3B:8-1.
- The elective share matter was consolidated into the pending Chancery Division suit concerning the business entities.
- The business-entities suit was subsequently settled, leaving the court to decide the issues regarding the widow's elective share.
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Issue:
Under New Jersey's elective share statute, does a surviving spouse who elects against a will (1) share in the post-death appreciation and income of the estate's undistributed residuary assets, and (2) take her share free from estate and inheritance taxes when the will directs that all taxes be paid from the residuary estate?
Opinions:
Majority - Cohen, Richard S., J.S.C.
Yes. A surviving spouse who elects against a will is entitled to share in the post-death appreciation and income of the estate's undistributed residuary assets and takes her share free from estate and inheritance taxes where the will directs such taxes be paid from the residuary estate. The court determined that the elective share is a fractional, not a pecuniary, interest. This means the electing spouse shares in gains and losses in asset values occurring between the date of death and the date of distribution. This sharing, however, only applies to the undistributed residuary probate assets, not to non-probate transfers or specific bequests. The spouse's right to a fractional share vests at death, which also entitles her to a proportional share of the income earned by those same undistributed residuary assets. Finally, where a will contains a clear tax apportionment clause directing all estate and inheritance taxes to be paid from the residuary estate, that clause applies to the elective share as well. This interpretation is consistent with prior case law and the presumption that a testator intends to achieve the maximum tax advantage for the estate.
Analysis:
This case provides a foundational interpretation of New Jersey's then-recent elective share statute. The court's holding established that an elective share is not a static, date-of-death pecuniary amount but a dynamic, fractional interest that participates in the estate's financial performance during administration. By aligning the treatment of the elective share with that of residuary and intestate shares regarding gains, losses, and income, the court promoted equity and consistency in estate law. This decision set a crucial precedent for how to calculate and distribute an elective share, ensuring surviving spouses receive a fair portion of the estate's actual value at the time of distribution, rather than a fixed sum that could be diminished by inflation or market changes.
