By Fredrick P. Niemann, Esq. of Hanlon Niemann, a Freehold, NJ Estate Planning Attorney
New Jersey taxes everything. Even upon death the state has its hands in your pocket by virtue of its laws which require your personal representative (like an executor, administrator) or trustee to obtain a tax lien waiver before transferring estate assets to beneficiaries. In fact, N.J.S.A. 54:35-5 provides that the New Jersey transfer inheritance tax is a lien on all property owned by a decedent as of the date of his or her death for a period of fifteen (15) years thereafter. The New Jersey estate tax is a lien on all property of the decedent as of the date of his/her death and no property owned by the decedent at the time of death can be transferred without the written consent of the state. Tax waivers are required to transfer the following assets: New Jersey real property (like a residence); funds held in a New Jersey bank; brokerage accounts or mutual funds that do business in New Jersey; stocks or bonds of a New Jersey corporation or institution.
There are however certain exceptions to the requirement of obtaining a tax lien waiver and an executor or trustee may be able to transfer a portion of the decedent’s estate without risk of a tax lien provided certain conditions are met. These conditions provide that 1) banks may release (without a tax waiver) an amount up to 50% of the entire amount of funds on hand to any of the following representatives:
1. An executor;
2. An administrator;
3. Legal representative of the decedent;
4. The surviving joint tenant;
5. Estate of a minor person where title to the funds are held in the name of a custodian for the minor.
Any all checks drawn on an account owned by a decedent individually, jointly or otherwise when the checks were written prior to death and presented for payment within 10 days following the decedent’s death can be paid notwithstanding the 50% limitation referenced above. Of course, New Jersey being New Jersey allows for a representative to use funds on account to make full or partial payment of any New Jersey inheritance or estate tax payable to the state of New Jersey without first obtaining a tax waiver. The final exception to obtaining a waiver has to do with withdrawing funds from an account where the decedent has pledged his or her passbook or savings account as collateral for a loan.
There are some situations in which the personal representative of an estate or trust is exempt from obtaining a tax waiver altogether. In fact, some of these exceptions are the principal motivation for recommending estate planning by use of Revocable Living Trusts rather than a Last Will and Testament. Consider the following exceptions to the tax waiver requirement;
- For non-resident decedents; tax waivers are not required if the estate involves a non-resident. Inheritance tax waivers however, are required only for real property located in New Jersey.
- Real property which is held by a husband or wife as tenants by the entirety can be transferred without a tax waiver in the estate of the first spouse to pass on.
- Estate’s held in a bona fide trust. Revocable living trusts hold title to assets in the name of the trustee. Under New Jersey law and administrative rules a trust is not required to obtain a waiver to transfer legal ownership of trust assets following the death of the trust maker. This exemption makes the use of a trust a very powerful alternative to a last will as it allows the trustee to fully deal with the trust property in a manner which serves the principal interests of the beneficiaries in the timing of the sale of trust assets or distributions to trustees.
Further, transfers of savings accounts into an estate checking account or savings accounts within the same bank do not require the issuance of a tax waiver. Partnership interests do not require the issuance of a tax waiver for the transfer of real estate or personal property (tangible or intangible) owned by the partnership in which the decedent had an interest.
Finally, a tax waiver is not required for the transfer of certain personal property in the nature of wages, salaries, vacation and sick leave pay, payments under a pension profit sharing or bonus plan, any automobile, mortgage, account receivable or household goods, or funds held in the name of a funeral director or trust for the decedent to pay funeral and burial expenses.
The above is a brief summary of the laws governing the transfer and release of assets of an estate or trust from obtaining a tax waiver. If you are serving as an executor or trustee and are not certain of your obligations concerning tax liens which can result in a personal liability to you if not properly secured, please do not hesitate to contact Fredrick P. Niemann, Esq. of Hanlon Niemann, P.C. to meet and discuss your obligations and the satisfaction of your legal responsibilities. Fred can be reached at toll-free (855) 376-5291 or by email at firstname.lastname@example.org.