Selling Real Property from an Estate

Category: Probate and Estate Administration

A client recently called me under the misconception that she could not sell her deceased sister's condominium until that estate was finalized and all taxes were paid. She had found a buyer for the real estate and wanted to sell it as soon as possible.

Where an estate owns real property, the State of New Jersey has a lien on that property for any potentially unpaid inheritance or estate taxes. This lien may be removed by the issuance of Real Property Tax Waiver by the State, which is then filed by the County Clerk in county in which the property is located.

A Real Property Tax Waiver can be issued by one of two ways:

1 - If (a) all the estate beneficiaries are Class A (lineal ascendant and descendants, and your spouse), and (b) no New Jersey Estate Tax is due, then a Form L-9 can be filed affirming to the New Jersey Inheritance Tax Division that no tax is due. Upon processing, and Real Property Tax Waiver will be issued to be filed with the County Clerk.

2 - If an Inheritance Tax or Estate Tax is due, then the Real Property Tax Waivers will be issued together with a letter from New Jersey that it has accepted as correct all Inheritance and Estate Tax returns filed and payments made. This normally takes well over a year from the date of death, due to the time necessary to prepare and file the returns, and then have them reviewed by New Jersey.

What happens if there is a tax due and you want to sell the property before the Real Property Tax Waiver has been issued? As a practical matter, the buyer's title company will require that some percentage of the sale proceeds be held in escrow until the Real Property Tax Waiver has been issued. This does not prevent the sale, but instead creates a fund from which to pay the taxes. The escrow can be released either (1) to New Jersey or the IRS to pay taxes due, or (2) upon presentation of Real Property Tax Waiver.

Single and Don't Have a Will? New Jersey has one for you.

Category: Estate Planning, Probate and Estate Administration

In a follow-up post to Married and Don't have a Will? New Jersey has one for you, another reminder that "Surprise! If you don't make your own Will, the State of New Jersey has one for you. While this might seem like a generous thing, the question is whether the Wwill that New Jersey made for you matches what you would like done with your assets."

If you don't have a Will and aren't married, your estate will be divided as follows:

1. To your lineal descendants (your blood descendents) by representation (generally equally among your children; however, if one or more children have died, all of the grandchildren whose parents have died will share equally in what all the deceased children would have received);

2. If there are no surviving descendants, to your parents, or the survivor among them;

3. If there are no surviving descendants or parents, to your parents' descendants by representation (your siblings and their children);

4. If there are no surviving descendants, parents or descendants of a parent, but you are survived by one or more grandparents:

* 50% to: first, your paternal grandparents or the survivor; next, to the descendants of your paternal grandparents (your aunts, uncles and cousins on your father's side)

* 50% to: first, your maternal grandparents or the survivor; next, to the descendants of your maternal grandparents (your aunts, uncles and cousins on your mother's side)

5. If there are no surviving descendants of grandparents, then to your step-children or their descendants by representation.

6. If there is no such person, everything to the State of New Jersey (the ultimate beneficiary if you don't have a Will)

Savings Bonds (Part 2) - What Happens when the Bond Owner Dies?

Category: Estate and Inheritance Tax, Tax Law and Planning, Probate and Estate Administration, Financial Planning

Savings bonds are a ubiquitous asset. However, dealing with savings bonds as part of an estate can in many ways be more complicated then dealing with other investment assets, such as mutual funds, stocks and bonds, where a broker can coordinate transfer and liquidation efforts. In a prior post Saving Bonds (Part 1) - Learning More about those Bonds - I discussed resources to learn more about the value of any bonds. Here, we are looking at what to do with the bonds as part of an estate, or if you inherit bonds as a result of a person's death.

A few general rules, regardless of what series of bonds (E/EE, H/HH or I):

• Single Ownership: If the savings bonds are owned by one person, and that person dies, the bonds are now owned by the person's estate. The executor, personal representative, or administrator, as the case may be, is the only person authorized to deal with the bonds after a person's death. This means that a probate proceeding will need to be opened so that a person is named by the court to liquidate or transfer title to the bonds.
  
  
• Joint Ownership: If the bonds have co-owners, and one owner dies, the bond now belongs entirely to the co-owner. The co-owner may now liquidate the bond, change title to his or her own name, or change title to the surviving owner and another person of the owner's choosing.
  
  
• Named Beneficiary: If the bond owner named a beneficiary to the bonds on the bonds (not through her will) then upon the bond owner's death, the bond ownership is automatically transferred to the beneficiary. The named beneficiary may now liquidate the bond, change title to his or her own name, or change title to the named beneficiary and another person of the beneficiary's choosing.
  
  
• Estate Tax Consequences: Where the bonds are owned by one person (or by one person who names a beneficiary), 100% of the value of the bonds as of date of death is includible in a person's taxable estate. Where the bonds are owned by more then one person, there is a presumption that 100% of the value of the bonds is includible in the taxable estate of the first person to die. This presumption can be rebutted if the surviving co-owner actually contributed money to buy the bonds. The more likely scenario is that grandma bought a bond naming grandchild as co-owner with grandma's money. In this situation, 100% of the value of the bond on the date of grandma's death is included in her estate, even though she had a co-owner.
  
  
• Income Tax Consequences: Interest income on bonds is generally reported only when the bonds are cashed, disposed of (note: a change of ownership is considered a "disposition" of the bonds and interest accrued to that date must be reported at that time), or reach final maturity. Unlike other types of investments, there is no "step up in basis" for savings bonds, and the accrued, but as yet untaxed income, must be reported as some point by the estate or the beneficiaries.
  
  If a person owned bonds in their own name with no beneficiary, reporting the interest on those bonds for federal income tax purposes is the responsibility of either (a) the estate if the executor, personal representative, or administrator as the case may be, redeems the bonds; or (b) the beneficiaries of the estate if the bonds are transferred to them as new owners, in the year in which they redeem bonds or the bonds reach final maturity.
  
  Where there is a co-owner or beneficiary named, the co-owner or beneficiary is the new owner and as such is required to include on his or her return interest earned on the bonds for the year the bonds are redeemed or disposed of (including re-registration by substituting a new owner for the original living owner) or the bonds reach final maturity, whichever occurs first. Alternatively, even when there is a surviving co-owner or beneficiary, the person filing the decedent's final 1040 has the option of reporting on that return all interest earned on the bonds to the date of death. This option might be used where a person on a low income tax bracket has died, leaving the bonds to a person in a higher tax bracket.

The Bureau of Public Debt, on the Treasury Direct website, has detailed articles specifically outlining how savings bonds are to be treated in the event of the death of a bond holder.

• Series EE/E - What To Do When a Bond Owner Has Died
  
• Series HH/H - What To Do When a Bond Owner Has Died
  
• Series I - I Bond(s) Owners Deceased