Father’s Transfer To Son’s Business Was An Investment, Not A Gift; Therefore, The Father’s Estate Has An Ownership Interest In The Business

The decedent, Byung-Tae Oh, was a citizen and resident of the Republic of Korea. His youngest son, Hyung Kee Oh, owned B & H Consulting, a New Jersey limited liability company. Before his death, the decedent had transferred $900,000 into B & H’s bank account.

Following the decedent’s death, his oldest son, Won Ki Oh (the plaintiff), a resident of Korea, filed a complaint in the New Jersey Superior Court, Probate Part, seeking to be appointed administrator of the estate for purposes of marshalling the decedent’s New Jersey assets. The plaintiff alleged that the $900,000 transfer to B & H was an investment and that, as a result, the decedent was part owner of the business.

The decedent’s younger son (the defendant) moved to dismiss the New Jersey action, claiming that the $900,000 was “start-up money” for the business, but was not an investment, because the decedent had not treated that payment as entitling him to a legal ownership of the business. Therefore, according to the defendant, the transfer was a gift, and the decedent’s estate did not have an ownership interest in the business.

The parties filed cross-motions for summary judgment. After the chancery judge ruled in favor of the plaintiff, the defendant appealed.

The defendant’s first argument on appeal was that the New Jersey courts lacked jurisdiction over the case. The appeals court noted that ancillary jurisdiction would only exist if the New Jersey property was owned by an intestate nonresident, but whether the decedent owned the property was the primary dispute between the parties. The appellate court found that this was a “classic chicken-and-egg problem”: to determine whether there was ancillary jurisdiction, the chancery judge had been required to resolve the merits of the dispute–whether the $900,000 transfer gave the decedent an ownership interest in the property. The court concluded that, by determining that the transfer was an investment and not a gift, the chancery court implicitly, and correctly, concluded that it possessed jurisdiction.

The defendant’s next argument was that the court had erred in applying New Jersey law, rather than the law of Korea. However, because he had failed to raise the issue before the chancery court, and because he had made no showing that Korean law would compel a different result, that argument was rejected.

Next, the defendant argued that, because the transfer was from the decedent to his son, the chancery court should have applied a presumption that the transfer was a gift. However, the Appellate Division recognized that the burden of proving an inter vivos gift rests on the alleged recipient, and the recipient must generally show by “clear, cogent and persuasive” evidence that the donor intended to make the gift. Moreover, when the claim of a gift is first asserted following the death of the alleged donor, “clear and convincing” proof is required. The appellate court acknowledged that, where a transfer is made from a parent to a child, the initial presumption is that the transfer is a gift. However, in this case, the transfer was made to the business, not to the defendant. Therefore, no such presumption attached.

The appeals court found that the defendant failed to present evidence sufficient to prove an intent to make a gift: although he made self-serving claims regarding discussions with his father, the plaintiff provided proof that the father had reported the $900,000 transfer as an overseas investment to the Export-Import Bank of Korea. The appellate court concluded that the proof presented was so one-sided that summary judgment against the defendant was appropriate.

Finally, the defendant claimed that the authority granted to the plaintiff/administrator over the New Jersey business was excessive. The defendant failed to raise this issue until he moved for a stay pending the appeal and, although the chancery judge had not barred the defendant from making a motion to modify the order, the defendant failed to do so. Thus, the appellate court determined that the chancery court had not been given the opportunity to reconsider the scope of authority, so the appeals court found the grounds for appeal to be premature.

A copy of In re Estate of Oh can be found here – Estate of Byung-Tae Oh

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