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.


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.

A New Jersey Tax Court judge ruled that the State of New Jersey is obligated to act with integrity and comply with its deliberate representations that lottery winnings were not subject to income tax, therefore barring them from taxing annuity payments of our client’s $46 million lottery winnings.

On June 9, 2000, our client, 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 disputed 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 filed a lawsuit against the State of New Jersey, Division of Taxation and State of New Jersey, Division of Lottery. The Milligans alleged breach of contract, violations of both the United States Constitution and New Jersey State Constitution, violations of the common-law “manifest injustice” and “square corners” doctrines, and sought reversal of their denied refund claims.

On September 26, 2016, the Honorable Judge DeAlmeida granted the Milligans partial summary judgment based on the square corners doctrine which states, in essence, that in dealing with the public the government must act with integrity and “turn square corners”. Reversing the final determinations of the Division of Taxation, the Court concluded that the State is prohibited from imposing gross income tax on the Milligan’s winnings from a 2000 New Jersey lottery prize received in installments in 2009 and later years. The Court further explained that although the 2009 amendment allows for gross income taxes on lottery prizes, the retroactive extension of state income tax to our client’s winnings is barred by such doctrine because it is indisputable that in 2000 state lottery officials actively and intentionally represented to the public that winnings were not subject to New Jersey gross income tax. These representations “became part of the contractual agreement” between the State and Milligan, who elected to receive his winnings in installments over a 26 year period with the understanding that the payments would not be subject to income tax.

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
The Repeal of the New Jersey Estate Tax: Is it Now Safe to Move Back to New Jersey?

Tax, Trusts & Estates Law October 19, 2016

Gary A. Phillips and Steven M. Saraisky
May 2016 Newsletter

Cole Schotz News May 2016


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