How to Deal with an “Illegal Immigrant” As a Surviving Spouse for NJ Death & Inheritance Tax

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Estate Administration Attorney

Occasionally I have clients who are NJ residents but one spouse is an illegal resident meaning he or she is undocumented. Recently I read about a case where the husband died leaving his entire estate totaling $4 million to his wife. Three months later the wife died leaving her entire estate – the same $4 million – to their children, all adults. Both husband and wife are New Jersey domiciliaries, meaning New Jersey is their home state.

The executor of the wife’s estate obtained a Court Order authorizing the disclaimer of $675,000 of assets (see my several blogs & videos on the topic of disclaiming found in the table of contents) otherwise payable from husband’s estate to her that would not have passed to the children. There’s no federal estate tax due on either estate; now soon in New Jersey there will be no estate tax. As of the writing of this article the Governor and State Senate have agreed to gradually phase out the N.J. death tax starting January 1, 2017.

But…and here’s the twist…it turns out that wife may not be a US citizen, so no marital deduction is available in the husband’s estate, thus creating a New Jersey estate tax in husband’s estate and again in wife’s estate. To avoid this result (if indeed she isn’t a US citizen) it seems the options are: 1) establish a QDOT (called a Qualified Domestic Trust) which is used to shelter otherwise payable death taxes when a Non-US Citizen inherits an estate or 2) seek to amend the disclaimer to authorize a 100% disclaimer of all assets in husband’s estate by disclaiming the entirety of husband’s estate. Those assets would then pass directly to the children and avoid inclusion in wife’s estate and still avoid all Federal death tax and a substantial portion of New Jersey death tax.

In this case I think the best solution is to apply for court approval to apply the additional disclaimer in excess of $675,000 threshold. I don’t think you need to amend the previous disclaimer if you get court approval for an additional disclaimer, based on newly discovered citizenship status. But note that you may not even need court approval as N.J.S.A 3B:9-4 was amended in 2004 to permit an executor to disclaim without court approval if the will so permits.

An interesting case indeed!

To discuss your NJ Estate Planning or Administration and Probate matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.