Originally published on Forbes.com Feb 20th, 2014
Misha Dabich was the “companion” of philanthropist Lillian Booth. Their relationship lasted 51 years till Ms. Booth died at the age of 92 in 2007. Her estate was valued at approximately $200-million and made no provision for Mr. Dabich. This might have been particularly galling since there was about 8.9-million in trust for her nephew, Robert Reldan. Mr. Reldan is serving long sentences for two murders and is suspected in six others. Ironically, he was also convicted of plotting to hire a hit-man to kill Ms. Booth and Mr. Dabich.
Mister Dabich ended up not being left out in the cold. He argued that he and Ms. Booth had a common-law marriage under the laws of Pennsylvania. The executors of the estate reasoned that discretion was the better part of valor and entered into a settlement agreement with Mr. Dabich
The September 23, 2008 agreement reflected a settlement between the Estate and Dabich in connection with the Estate’s probate proceedings pending before the New Jersey Superior Court. Some of the “Whereas” clauses recited that (i) Dabich had made claims “of being the surviving spouse of the Decedent” among others; (ii) the Estate had “thoroughly investigated the factual and legal basis” of such claims; (iii) the Estate acknowledged that Dabich and the decedent “cohabited together for approximately 51 years until the decedent’s death” which “thereby creat a bona fide recognition” of Dabich’s “monetary and marital” claims; and, (iv) the settlement was entered to avoid costly/acrimonious litigation and “in bona fide recognition of monetary and marital claims based upon all facts and circumstances.”
Mr. Dabich got the residence that the couple had shared in Alpine, NJ. (Alpine NJ is one of the most expensive zip codes in the country.) The Estate also put $5-million into a QTIP to benefit Mr. Dabich. The settlement was goosed up a little in 2009. In the end, Mr. Dabich’s share of the estate, including the amount in the QTIP, was pegged at $9.9 million, which was a little better than the reputed serial killer had done. In 2010, the IRS issued the estate a closing letter that reflected the $9.9 million as a marital deduction.
The $9.9 million marital deduction was what had the estate in New Jersey Tax Court . New Jersey, like many states, used to have a “pick-up” tax. The New Jersey estate tax was the amount of the state death tax credit that was allowed against the federal estate tax. After the credit was repealed, New Jersey changed its estate tax to the amount that would have been the credit, if there were still a credit. I’m actually simplifying it, believe it or not. The important point is that in the Estate’s view, the IRS agreement that there was a marital deduction should be binding on New Jersey. The New Jersey tax authorities thought otherwise.
As it turns out, New Jersey law frowns on common law marriage. If people come into New Jersey, already common-law married, the state grudgingly recognizes the marriage, but people already domiciled in New Jersey can’t become common-law married in another state and expect New Jersey to recognize the marriage. The IRS is supposed to follow state law in determining marital status for federal purposes. There was no judicial determination of a common-law marriage, so the New Jersey taxing authorities get to second guess the IRS determination. I’m not sure that this decision has broad-reaching implications, but it might be one more thing for planners to be alert to.
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Afternote
You will probably be pleased to learn that the parents of one of Reldan’s victims sued and that most of his trust is now going to a scholarship fund named after Susan Reeve .