Selling Real Estate of a Deceased Owner (Part 2)

In my post last week, I told you about a call I received about an unmarried couple who owned a home together.   The woman had died a year before the man.  I explained that New Jersey has an inheritance tax that is payable 8 months after death.  The tax is based on the relationship of the heirs to the person who died.  Class A beneficiaries are exempt from the tax, which includes spouses, parents, children and grandchildren.  That is why many, but not all, estates are exempt from inheritance tax.  In this case, the woman who died left everything to her parents except for her share of the home which she left to her partner.  That was the only asset that was subject to inheritance tax.

The State, automatically by law, has a lien on New Jersey real estate and funds in New Jersey financial institutions when a person dies.  The State releases its lien by issuing a tax waiver.  This waiver is generated when an inheritance tax return is filed and the correct amount of tax paid.  In certain instances in which no inheritance tax is due, an affidavit can be submitted to the State requesting the waiver without the requirement to file the tax return.

In this case an inheritance tax return was required and tax needed to be paid because the surviving co-owner of the home was a Class D beneficiary.  The home was valued at $400,000 at the time of the woman’s passing.  That would make the inheritance tax on her share $30,000.  Interest also was accruing at 10% a year beginning 8 months after death when the tax was due but not paid.

As it turned out, the surviving co-owner died a year after the woman’s passing.  The administrator of his estate (he left no will) discovered at that time that the deed to the home had never been transferred by the executor of the woman’s estate.  Upon contacting the attorney representing the estate, we learned that the executor had disbursed all assets (except the real estate) and had not been in contact with the executor for some time.

Additionally, there was the matter of the inheritance tax which had not yet been paid.   There was also the question of who was to be responsible for paying that tax.  The woman’s will answered that question.  It contained a specific provision directing that the tax was to be apportioned to each heir’s share.  That meant the partner – or now his estate – was responsible for paying the tax.

A buyer was found quickly and the title company for the buyer required proof that the taxes with respect to both estates had been paid.  We were still working on the inheritance returns so they were not yet filed.  Next week I’ll tell you the rest of the story.