Consider the following scenario. A healthy and fit man in his late 90s dies prematurely in 2008 as a result of a tragic car accident. His estate pays over $1 million in estate taxes, but if he had instead died in 2009, 2010 or 2011, his estate would have faced a significantly lower estate tax bill, perhaps as low as $0. Can this man’s heirs recover for their lost inheritance due to the increased estate taxes paid in 2008 compared with those due if the decedent had died a few years later? The Appellate Division of the Superior Court of New Jersey was recently presented with these facts, and, on May 29, 2012, held that when calculating damages in a wrongful death action, a jury can consider evidence of the heirs’ lost inheritance due to increased estate taxes imposed because of the decedent’s premature death. While this decision doesn’t reach the ultimate question of whether heirs can actually recover for their lost inheritance, it lays the groundwork for some fascinating future case law that reflects the continued uncertainty surrounding the federal estate tax.
Here’s what happened in Beim v. Hulfish (http://www.judiciary.state.nj.us/opinions/a5947-10.pdf): In early 2008, 97-year-old John G. Kellogg was seriously injured in a car accident. He died approximately two weeks later, allegedly due to the injuries he suffered. His estate paid $1,196,083.57 in estate taxes. The executors of the decedent’s estate and his children brought a wrongful death suit against the owner of the other car involved in the accident, seeking the difference between the estate tax paid in 2008 and the estate tax that would have been owed if the decedent had lived until 2009 or later. They argued that, had John survived until 2009, his estate would have paid $570,000.57 in estate tax, and if he had survived until 2010, no estate tax would have been due upon his death. The plaintiffs argued that their lost inheritance is recoverable “pecuniary injuries” suffered as a result of the decedent’s untimely death.
The lower court dismissed the case, reasoning that as Congress hadn’t yet reached a decision on the estate tax beyond 2010, such damages were “too speculative in nature.” After all, it was possible that John would have survived beyond 2010, as the mortality tables used by New Jersey courts establish that the of a 97-year-old’s life expectancy person is 3.2 years. Therefore, it was nearly impossible to prove what John’s estate tax liability would have been at the time of his death, had he survived beyond 2010.
Appeals Court Ruling
The appeals court ruled that considerations of differences in estate tax obligations weren’t speculative and could be considered by a jury in determining the damages in a wrongful death action. First, the court considered that the purpose of the Wrongful Death Act (the Act) is remedial, in that it aims to “compensate survivors of those wrongfully killed for their pecuniary losses.” To measure damages under the Act, New Jersey courts consider the “deprivation of a reasonable expectation of a pecuniary advantage which would have resulted by a continuance of the life of the deceased.” While the lost inheritance alleged by the plaintiffs was distinct from the lost inheritance alleged in the typical wrongful death action, the court held that juries should be permitted to consider all possible types and sources of damages to remedy the pecuniary injuries of survivors. New Jersey juries frequently engage in life expectancy analyses and consider the consequences of taxes on survivors’ pecuniary losses in personal injury cases. Such considerations allow juries to make informed damages decisions, and the court therefore ruled that juries should also consider the consequences of an increased estate tax obligation due to a decedent’s premature death.
The appeals court also noted that there was nothing speculative or overly complicated in allowing the jury to consider the estate tax implications if decedent had died a few years later. The court held that “[g]iven the narrow window of Mr. Kellogg’s life expectancy, it was not unduly speculative to recognize that but for defendant’s alleged tortuous conduct he might have survived to a point that his estate’s tax liability was eliminated, resulting in a tangible economic advantage to his heirs.” Since the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 clarified the estate tax structure through the end of 2012, the jury could easily determine what John’s estate tax consequences would have been if he had died anytime between 2009 and 2012. Therefore, any degree of uncertainty or speculation as to the differing estate tax consequences was very small, given John’s advanced age at the time of the accident.
Specific to New Jersey
It will be interesting to learn the jury’s decision regarding damages in this case. However, before following this case too closely, it’s important to note that this decision is specific to New Jersey law. In its decision, the appeals court examined older cases from state courts in Illinois, Florida, and New York, which don’t permit juries to consider evidence of estate taxes in calculating damages in a wrongful death action. These cases analyzed different state laws, applied different tests and followed different state policies with respect to whether or not juries may consider the impact of an increased estate tax in wrongful death action. As a result, the appeals court in Beim refused to follow these cases. However, practitioners outside of New Jersey should be sure to consult their own state law on this issue, as each state’s different laws, judicial tests and policies may compel different results.