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Tax, Trusts & Estates

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The Cole Schotz Tax, Trusts & Estates attorneys counsel individuals and businesses in a range of tax and estate planning strategies.

Our clients include owners of family businesses where succession planning and asset protection are linked, and individuals of substantial means who wish to take advantage of sophisticated tax planning techniques to retain and build their wealth for future generations.

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Tax, Trusts & Estates Representative Matters

We succeeded in substantiating, in IRS proceedings, the transfer of approximately $6 million of assets out of a client’s taxable estate shortly before the client’s death with no transfer tax consequences. The taxpayer funded a limited partnership with $10 million of assets and then sold a 50% limited partnership interest to her children in exchange for a private annuity, transferred approximately 10% to a charitable lead trust and transferred small percentage interests to the taxpayer’s children and grandchildren. These strategies saved the family approximately $3 million in estate taxes.

The Presiding Judge of the New Jersey Tax Court held in our favor, ruling that our clients can proceed with their claims against the State of New Jersey, Division of Lottery challenging the retroactive taxation of their lottery winnings.
 
On June 9, 2000, Melvin Milligan won the top prize in the Big Game Drawing totaling approximately $46 million. When Mr. Milligan won and claimed his New Jersey Lottery prize, winnings from the New Jersey Lottery were specifically excluded by statute from taxable income under the New Jersey Gross Income Tax Act, N.J.S.A. § 54A:l-l, et seq. After consulting with counsel, and in reliance on the State tax laws in existence at that time, Mr. Milligan opted to receive his prize in 26 annual installments of approximately $1,769,000 each.
 
Mr. Milligan received the agreed-upon installments without issue until 2009, when the State of New Jersey amended the law to subject New Jersey Lottery winnings over $10,000 to the New Jersey Gross Income Tax. This amendment was enacted on June 29, 2009, but made effective retroactively as of January 1, 2009. As a result, beginning tax period 2009, and every year thereafter, Mr. Milligan and his wife, Kimberly-Lawton Milligan, began reporting the New Jersey Lottery winnings as income and paying the applicable tax in excess of $133,000 each year. The Milligans dispute New Jersey’s right to collect income tax on their prize money – a prize won over nine years before the change in the law – and have filed a lawsuit against the State of New Jersey, Division of Taxation and State of New Jersey, Division of Lottery. The Milligans allege breach of contract, violations of both the United States Constitution and New Jersey State Constitution, as well violations of the common-law “manifest injustice” doctrine based on the retroactive application of the tax.
 
On February 24, 2015, the Honorable Patrick DeAlmeida, Presiding Judge of the Tax Court in Trenton, New Jersey, ruled that the Milligans can proceed with their lawsuit against the Division of Lottery who sought to dismiss the Millgans’ action for failure to state a claim. In his opinion, Judge DeAlmeida held that “[a]n inference can be drawn” that the Milligans were induced to play the lottery and that “the Division of State Lottery breach[ed] the resulting contract when in 2009 it paid [the Milligans] less than the contractually agreed upon sum certain.” Rejecting the Division of Lottery’s arguments, the Court further held that “[t]he Complaint without question suggests a contract claim against the Division of State Lottery … based on legal precedents recognizing a contractual relationship between the bearer of a winning lottery ticket for the June 9, 2000 drawing and the Division of State Lottery.” A copy of the full opinion can be found here.
 
In addition to the Milligans, this firm represents over two dozen other plaintiffs who are similarly challenging the State’s retroactive taxation on their lottery winnings. The Court’s ruling in Milligan applies across the board to our other clients.

Cole Schotz has published a book titled On the Road to Florida: Cole Schotz's Practical Guide to Changing Your Residence from New Jersey or New York. Authored by the attorneys in the Tax, Trusts and Estates Department, and edited by Gary A . Phillips, the book serves as a guide to saving significant tax dollars by moving from New Jersey or New York and establishing residency in Florida. If you are interested in receiving a complimentary copy, please send an email including your mailing address to jkoshar@coleschotz.com.
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