Estate Administration

When a loved one passes, quite often we get a call from an overwhelmed person tasked with administering the estate because the beneficiaries are quickly asking: “How much and I’m gonna get, and when am I gonna get it?”

The role of managing an estate is often a large undertaking, and family dynamics or problems pending at the decedent’s death can take a toll on the Executor, Trustee, or Administrator.

How We Help:

We guide Executors, Trustees, Administrators, and often even beneficiaries through each step. We explain the process, prepare required documents, help address creditor and tax issues, and work toward an efficient and proper distribution of assets. Here’s a little of what an estate fiduciary can expect in navigating an estate in New Jersey:

Estate Administration is the legal process of settling a person’s affairs after death. It may involve probate, finding and collecting assets, finding and paying the loved one’s valid debts and taxes, filing required income tax and potentially inheritance and estate tax returns, and distributing property to the proper beneficiaries.

If There Is No Will:

Dying without a valid Will is called “intestacy”. New Jersey law then decides who receives probate property. An unmarried partner generally does not inherit unless the partner is a legally recognized civil-union or domestic partner. Children from a prior relationship may change how an estate is divided. They may also reduce the share passing to a surviving spouse or partner. Clear planning can help avoid unintended results and family disputes. If the probate estate is greater than specific amounts, the Administrator may have to post a bond.

Duties of an Executor or Trustee:

An Executor handles the probate estate. An Executor must locate and protect assets, follow the Will, pay valid expenses and claims, address taxes, keep records, communicate with beneficiaries, and distribute the estate properly.

A Trustee manages trust property. A Trustee must follow the trust, act loyally and carefully, keep trust property separate, maintain records, provide required information or accountings, address taxes and expenses, and make proper distributions.

Executors and Trustees are fiduciaries. They must act in the best interests of the estate, trust, and beneficiaries—not themselves.

How Property Passes:

TOD means “transfer on death.”POD means “payable on death.” These directions name who receives an account or asset at death, usually, but not always, without a probate process. A beneficiary designation works in a similar way. It commonly applies to life insurance, retirement accounts, and annuities. It’s extremely important to understand that the named beneficiary usually controls, even if a Will says something different. A trust that was created and funded during lifealso avoids probate, and there are different reasons why someone would have created a trust either apart from or in conjunction with a probate estate. Each case is different. “Joint tenants with right of survivorship” or “Tenants by the Entireties”, applicable only to married couples, usually means the surviving owner receives the property automatically. “Tenants in common” means each owner has a separate share. That share passes under the owner’s Will or, if there is no Will, under intestacy law.

Taxes:

New Jersey has no estate tax for deaths occurring on or after January 1, 2018. But a future Legislature could bring it back. Don’t assume it won’t. Many people are surprised to learn that even though there currently is no estate tax, that New Jersey still has an inheritance tax. When someone dies a resident of New Jersey, the state imposes a lien upon all the assets for fifteen (15) years unless and until it is proven that no inheritance tax is applicable, or the correct amount of inheritance tax is paid. This catches many surviving loved ones by surprise because they are not familiar with this rule and how to retrieve an asset, whether it is or isn’t subject to estate tax. Edwards Estate & Elder Law helps our clients navigate these complex estate administration laws and communication with beneficiaries. We also help beneficiaries understand these laws,

Whether inheritance tax is due depends on the beneficiary’s relationship to the person who died. Life insurance death benefits payable to a named beneficiary or a trust naming a beneficiary are exempt from inheritance tax. Even some assets outside of New Jersey that were owned by a New Jersey resident can be exposed to inheritance taxes (real estate is typically exempt). “Class A” beneficiaries are exempt from inheritance tax. We refer to this as the “tree trunk” of the family tree, where the sap flows up and down and the tree generates multiple generations. These include your bloodline relatives such as grandparents, parents, children, grandchildren, great-grandchildren, etc., your spouse, your civil union partner, your registered domestic partner, your step-children named in your planning documents, and your adopted children (not only minor children, but even those who were adopted pursuant to the Adult Adoption statute). Be forewarned: step-grandchildren are NOT exempt from inheritance tax. Up in the tree canopy there are horizontal branches, known as “Class C” beneficiaries, who are subject to a tax from 11% to 16%, depending on the value of their net inheritance, after a $25,000 exemption. These beneficiaries include the deceased person’s siblings and children-in-law, even if the child has predeceased the child-in-law while married to him or her. Everybody else is on a diagonal branch in the canopy, the “Class D” beneficiary subject to a tax of 15% to a “ net inheritance that is $500 or more. This includes, for example, nieces, nephews, aunts, uncles, godchildren, step-grandchildren (step-children are exempt as long as they are named in the planning instrument), friends, or the neighbor who shoveled your walk or pruned your trees for you.

The estimated tax must be paid within eight (8) months of death or the estate will incur a 10% annual interest rate. Extensions to file the Inheritance Tax Return can be made if the estate is not ready to prepare a complete return.

Federal estate tax applies only to estates above the federal exemption, currently “permanently” set at $15,000,000. But a future Congress could reduce it in the future. Don’t assume it won’t.