Choosing the Right Tax Clause

Lou Grant owned a successful horse tack business worth millions.  Through gifting and his estate, this business passed to his son, Lou Jr.  His daughters, Nancy and Virginia, had an opportunity to participate in this business but refused to sign the requisite agreements to do so based on the advice of Virginia’s husband who is an attorney.  Ironically, despite this apparent poor counsel, they filed a Will contest and other litigation to get the benefits of the business divided equally among the three children after their father died.

The good news for Lou Jr.was that the Will was upheld and he kept the business.  However, the bad news was that Lou was left with approximately 97% of the tax bill for the estate taxes which exceeded $1,000,000.  This result was mandated by the New Jersey Appellate Court despite language in the Will which said that the taxes were to be paid from the residuary estate.  However, after rounds of protracted litigation, the amount in the residuary estate was approximately $150,000.

This case highlights the need to closely examine how the provisions in a Will interact.  After gifting the business, there was not enough funds to pay the taxes from the residue.  Thus, clear direction needs to be obtained regarding these issues.  Moreover, this case reinforces the need for competent advice and the acknowledgement that Wills can’t be treated as fill-in-the-blank forms.


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