Real Estate Tax Problem – Part 2

In my post last week I began to tell you about a real estate sale that we were asked to help finalize because the deceased owner’s estate administration process had never been completed.  Actually, the person who inherited ownership had also died as did the person who inherited it from that person.

As I stated last week, the problem came to a head because the insurance company that insures the property for the buyer would not issue the policy without certain issues being addressed.  One was figuring out the rightful heirs to the property and having a person (executor or administrator) appointed by the Surrogate to be able to sign the necessary paperwork on behalf of each estate.

The other concern, however, was estate and inheritance tax.  Inheritance tax is determined based on the relationship of the heir to the person who died.  Class A beneficiaries are exempt from tax.  Spouses, children and grandchildren are Class A.  That meant that when A died and left the house to her daughter B, we did not need to worry about inheritance tax.  Under intestacy law, B’s share passed to her half sibling, C since she had no spouse or children.  C was a Class C beneficiary subject to inheritance tax.  C’s will left everything to his spouse, a Class A beneficiary so no inheritance tax there.

As for estate tax, while there currently is no New Jersey estate tax and hasn’t been since 2018, the law at the time of death is what matters.  A died in 1994 when estate tax kicked in for estates greater than $600,000,  B and C died when the estate tax applied to estates greater than $675,000, although transfers to spouses are never taxed even if greater than that amount.

So the only tax owing turned out to be inheritance tax on B’s estate.  But that is a little tricky since B died in 2010 and interest is due on unpaid tax beginning 8 months after death.  Next week I’ll get to that.