Untangling Real Estate from an Estate
Updated: Oct 26, 2020
By: Rachel W. Glavis, Esq.
Overview of Estate Taxes in New Jersey
Before January 2018, New Jersey residents were affected by two estate taxes: the estate tax, and the transfer inheritance tax. The estate tax affected estates whose assets exceeded a certain amount. The legislation that took effect at the beginning of the New Year removed the estate tax, but not the transfer inheritance tax, which is imposed on certain estates whose beneficiaries are not lineal beneficiaries.
Lineal beneficiaries are in direct line to the decedent, including a parent, child, grandchild, or great-grandchild. An estate that names any other beneficiary; such as a sibling, aunt, uncle, cousin or friend; may be subject to the New Jersey Transfer Inheritance Tax.
If the decedent had a will, an Executor must be appointed to administer the estate. When there is no will, an Administrator will be appointed instead. Executors and administrators fulfill the same role and both also receive documents from the court that give them the authority to administer the estate, called Letters Testamentary for executors and Letters of Administration for administrators.
How the Transfer Inheritance Taxes Affects Real Estate
Real property as well as assets may be subject to the transfer inheritance tax. If a decedent owned property in New Jersey, their estate may be subject to the tax even if the estate intends to sell the property.
Transferring Property with “Clear” Title
Only the executor (or administrator) has the authority to sign the documentation related to the real property transfer. When the property will be sold or transferred to a beneficiary of the estate, a process must be followed to permit the property to transfer with a “clear” title. Among a few other things, a clear title means that there are no liens and judgments on the property, including the New Jersey inheritance and estate tax lien.
Overview of Clear Title
When someone passes away, the State places an automatic lien that is only released when either: • The estate files and the State approves the NJ Inheritance Tax Return, and all applicable taxes have been paid, or; • The estate files and the State approves another form called an L9, an Affidavit Requesting Real Property Transfer, which shows that no taxes are owed because all heirs are lineal heirs.
Then, the State issues a tax waiver to the estate, which is recorded with the county clerk’s office so anyone performing a title search will see that the estate paid its tax or owed no tax and the State released its lien.
Without this tax waiver, the title company will require a certain amount of the real estate sales proceeds to be held in escrow until either the waiver is received or the transfer inheritance tax is paid in full from the escrow account.
It is possible for a decedent’s estate to not be administered for several years. For example, if the only remaining relative left to inherit from the estate is a niece, the executor would be required to file the Inheritance Tax Return because the estate owes a 15% inheritance tax plus interest. Unpaid inheritance tax is charged interest at a rate of 10% per year.
The loss of a loved one is a difficult challenge in and of itself. The added stress of sorting out how to properly handle and distribute your loved one’s assets, including real estate, can become overwhelming. Call (856) 642-6445 to speak with an attorney knowledgeable in both real estate and estate matters who will provide you with the guidance and assistance to resolve these issues with less confusion and stress.