When a child is born, many people purchase a life insurance policy for him or her. The parent is typically the owner and beneficiary of the policy, and many of these policies are known as industrial or debit policies. There were several purposes for these policies, namely to provide a death benefit, to add cash value, and also to guarantee insurability. There are also family policies issued where everyone in the family has some coverage, even in the unfortunate event of an incapacitated family member.
While it is relatively easy to have a policy issued once the insured has been qualified for coverage, it is very important to consider all of the facets of that policy. There are normally four parties to a policy: the insurance company, the owner, the insured, and the beneficiary.
Care should be taken to ensure that all of the correct parties are named within a policy, as there could be adverse consequences if the policy is not issued properly at its inception. Normally, an insurance agent reviews these options with the applicant when the policy is being issued or applied for.
So how about purchasing a life insurance policy on a disabled child? If your child is disabled to the extent that he or she is not insurable, a policy may not be able to be obtained at a standard rate. However, there are companies who will write policies with a rating based on the health of your child, and there are issues relative to these policies that you should consider.
- Who should own the policy? In most cases, providing that the parents do not have a significant taxable estate, they should probably be the owners of the policy. However, in the event that a parent predeceases the child, there should be a contingent owner. Without a contingent owner named in the policy, in the event of the death of the parent, this policy will have to be probated, and it will then pass to whomever the parent has left the assets to, family, friends, or charities. In most cases, policy proceeds are intended to remain in the family to cover expenses of the disabled child. Therefore, the contingent owner of the policy should probably be the surviving parent, a sibling, or possibly all siblings.
- Who is the beneficiary of the policy? Normally, the parents will be the beneficiaries, and the secondary beneficiaries would be the surviving siblings of the disabled child. If there are no siblings, family or perhaps a charity or non-profit organization may be named. In some cases, based on the size of the policy, an irrevocable life insurance trust could be considered as the owner and beneficiary of the policy. However, it is important to not name the disabled child as the owner of a whole life policy that will gain cash values. If the cash values of the policy exceed the threshold for either Medicaid, SSI limitations, or other governmental entitlement programs, the disabled individual could be disqualified from obtaining services or benefits. It is highly unlikely that the child will need the cash value of this policy during lifetime, but if needed, then the owner of the policy could either surrender or borrow against it to provide funds for the beneficiary.
In the event that a policy was issued without proper attention to its owners and beneficiaries, it is important to contact your agent or insurance company to discuss the options available. Perhaps this type of policy is no longer necessary, and it may be more appropriate to utilize the cash value within the policy to purchase life insurance on the parent, which may provide a larger death benefit for the disabled child.
Again, care should be given as to who actually owns the policy as well as the beneficiary. The owner should not be the parent if there is significant cash value, since if the parent becomes incapacitated, the cash value of the policy may have to be used for their long-term care. Also, if the disabled child is the beneficiary, the receipt by this child of the insurance proceeds may disqualify him for government benefits. In the event that the beneficiary is a non-disabled sibling, he may neglect to use the funds for the care of his disabled sibling.
Therefore, a special needs trust with the appropriate provisions will allow these funds to be utilized for the disabled child without having any loss of benefits. But more importantly, it will provide a guarantee that the funds will in fact be used only for your disabled child. Contingent beneficiaries may be listed within the trust after the death of the disabled beneficiary, such as charities, family, and possibly even other providers of services to the disabled child during their lifetime.
1) How do I begin the probate procedure?
The person that wishes to be appointed to represent the Estate will bring a certified copy of the death certificate and the original Will. While the Surrogate can begin the paperwork anytime after death, probate cannot be completed until the day following the tenth day after death.
2) Is the probate process expensive?
No. While fees are set by the New Jersey legislature, most probates cost less than $200.00.
3) Who has the right to be appointed when an individual dies without a Will?
The surviving spouse or domestic partner has the first right. However, any heir may be appointed assuming they obtain the appropriate renunciations from any other heir who has an equal or prior right to be appointed.
4) If an individual dies without a Will, what is the surviving spouse or domestic partner entitled to?
Where the surviving spouse or domestic partner has children of the same marriage and no stepchildren, the spouse or the domestic partner will inherit the entire estate.
If there is a child or children of the same marriage and the surviving spouse or domestic partner has a child or children of a prior union, then the spouse or domestic partner will take the first 25% of the estate, but not less than $50,000.00 nor more than $200,000.00, plus one-half of any balance. Decedent’s children share the other half equally (from this marriage or any prior union).
If the decedent has children from a prior union, the spouse or domestic partner will take the first 25%, but not less than $50,000.00 nor more than $200,000.00, plus one-half of any balance. Decedent’s children (from this marriage or any prior union) share the other half equally.
If there are no children, but the decedent is survived by parent(s), the spouse or domestic partner will take the first 25% of the estate, but not less than $50,000.00 nor more than $200,000.00, plus three-fourth of any balance. The parents will inherit the other one-fourth.
5) a. What is the procedure in a small estate without a Will or surviving spouse or domestic partner?
If a person dies without a Will or surviving spouse or domestic partner, but does leave heirs and the total value of the real and personal property does not exceed $10,000.00, one of the heirs with consent of the others may obtain an Affidavit of Heir in lieu of filing a formal Administration.
5) b. What is the procedure in a small estate without a Will when there is a surviving spouse or domestic partner?
If a person dies without a Will and is survived by a spouse or domestic partner, and the total value of the real and personal property does not exceed $20,000.00, the spouse or domestic partner may obtain an Affidavit of Surviving Spouse or Domestic Partner in lieu of filing a formal Administration.
6) Why do I need to post a bond if someone dies without a will?
New Jersey has determined that a bond must be posted that represents the full value of the real and personal property in the Estate. The bond acts as an insurance policy on the Estate to ensure that the assets are distributed properly. The Surrogate does not have the discretion or right to waive the requirement.
7) How does the surviving spouse or domestic partner access joint bank accounts or certificates of deposit?
Certain bank accounts or certificates of deposits may be owned with right of survivorship, which means that upon the death of one party to the account, the surviving spouse or domestic partner becomes the sole owner. The surviving spouse or domestic partner becomes the sole owner. The surviving spouse or domestic partner can fill out an affidavit of waiver or L-8 form at the bank to access the funds.
How may Surrogates certificates will I need?
A list of the Estate assets should be prepared to show the number of transfers that will need to take place. That number should reflect the required number of certificates. Additional certificates can always be requested from the Surrogate’s office. Check with the particular bank or institution as to how many certificates will be necessary.
9) Do I need to file a formal accounting if I represent an estate?
The answer is no as most Estates in New Jersey are settled without formal court proceedings. A representative may, however, file an informal accounting with the court or obtain a written agreement/consent form from all of the beneficiaries to the Estate that dispenses with the accounting, approves the actions of the representative and provides for the method or manner of distribution.
10) How do I prove that a distribution or legacies were paid?
A document called a refunding bond and release can be utilized and signed by each beneficiary to the Estate. They are then forwarded to the Surrogate’s office for filing. If the decedent dies without a Will, the bond posted can only be cancelled when the refunding bonds and releases are filed for all of the beneficiaries.
11) What are the Surrogate certificates used for?
They will show evidence of the authority of the personal representative to act. They are necessary to accomplish certain tasks such as transferring real estate, stock accessing or closing bank accounts, etc.
12) Am I entitled to compensation as a personal representative?
The answer is yes. The New Jersey Legislature has set commissions based on corpus and income amounts that are allowable on all Estates, Trusts and Guardianship matters. You are entitled to 5% on all corpus not to exceed $200,000.00, 3.5% in excess of $200,000.00 up to $1,000,000.00, and 2% over $1,000,000.00.
13) What is the personal representative required to do?
They are required to collect and safeguard all of the assets of the Estate, pay the debts and taxes and turnover the balance of the Estate funds to the beneficiaries.
14) Am I, as a personal representative, protected against creditors of the Estate?
Creditors must come forward and pursue their claims within nine months of the date of the decedent’s death. If a claim is not presented within the nine month period, the personal representative shall not be liable to the creditor with respect to any assets he or she may have delivered or paid in satisfaction of any lawful claims or shares due beneficiaries of the Estate before the presentation of the claim.
15) Is it necessary to send copies of the Will to the beneficiaries?
The personal representative is required, within sixty days of probating the Will or taking out letters of administration, to notify the heirs at law, next of kin and beneficiaries in writing that the Will is probated, the date and place of the probate, the name and address of the personal representative and a statement that a copy of the Will shall be furnished upon request. A proof of mailing would be filed in the Surrogate’s office evidencing the mailing.
16) What is done with a safe deposit box?
The personal representative is permitted to remove the original Will and deeds to a cemetery plot from a safety deposit box. There is no longer a requirement to have a representative from the New Jersey Inheritance Tax Bureau present. Any other items present in the box can be removed only on the presentation of a Surrogate’s certificate or if it is jointly owned then the joint owner can access and remove the items.
17) Where does the personal representative obtain the funds to pay the debts?
Normally, the representative of the Estate will open and maintain an Estate checking account to pay bills and debts of the Estate. Assets in the decedent’s name alone are usually liquidated and placed into the checking account. Remember that existing accounts are allowed to be accessed up to one-half of their value pending the tax waivers being received.
18) How soon must state inheritance taxes be paid?
New Jersey inheritance tax returns must be filed and the tax paid within eight months after the date of death to avoid interest. While an extension to file may be granted, the tax must still be paid initially.
19) Are unpaid inheritance taxes a lien on real and personal property?
The answer is yes. In order to sell real estate, tax waivers will be necessary from the New Jersey Inheritance Tax Bureau. The waiver is filed with the County Clerk in the county where the land is located. Land held by husband and wife as tenants by the entirety need not be reported and may be transferred without a waiver. Personal property such as bank accounts that do not meet the affidavit of waiver or L-8 formula will not be fully released until the appropriate waivers are received.
20) How can I change my Will?
Either by a codicil, which is an addition or supplement made to change or add provisions to your Will, or by a new Will. The codicil will republish the Will in all other respects. Remember that handwritten changes and markings made can invalidate the Will. The Surrogate will be unable to act and probate will need to be done in the Superior Court.
21) Can I disinherit my spouse, domestic partner, children or family under my Will?
The answer is yes; however, a surviving spouse or domestic partner may be able to file for an elective share against the Estate and if good cause is shown a disinherited child may also seek to recover a share of the Estate.
22) Do I need an attorney to prepare my Will or represent an estate?
The answer is no. However, it is strongly suggested that you seek the services of an attorney to prepare your Will as defects can cause more problems than the initial cost to have the Will properly drafted.
23) Can the probate process be stopped in the Surrogate’s office?
The answer is yes; before a probate is begun or completed, a caveat can be filed that restricts or prohibits the Surrogate from taking any other action on the probate. The process would then have to proceed in the Superior Court by Verified Complaint and Order to Show Cause for a hearing and determination.
24) Can I challenge a probate after it is completed?
The answer is yes. New Jersey Court rules set forth the time frame in which an application can be made to set aside a probate. The time differs on the residency of the person making the application. The complaint must be made in the Superior Court, Chancery.
Pennsylvania recently authorized a tax amnesty period from April 26 to June 18, 2010.
During this limited, 54-day time frame, the Pennsylvania Department of Revenue will waive 100 percent of penalties and half of the interest for anyone who pays his/her delinquent state taxes.
What Taxes Are Eligible for Amnesty?
All taxes administered by the PA Department of Revenue are eligible for the tax amnesty program. The tax amnesty does not include Unemployment Compensation because it is administered by the PA Department of Labor and Industry. Also, the program does not apply to any tax administered by another state or the federal government/Internal Revenue Service.
Any delinquent taxes as of June 30, 2009, and any non-filed returns due as of June 30, 2009, are eligible for tax amnesty.
How to Obtain Amnesty?
To obtain tax amnesty, you must do the following between April 26 and June 18, 2010:
1. file an amnesty return online with the PA Department of Revenue;
2. file all delinquent tax returns; and
3. pay all delinquent taxes plus 50 percent of the interest due.
For each tax delinquent, the department will send a written notice to the last known address on the department’s records. This notice will contain important information for the recipients to participate in the amnesty program.
Who Qualifies for Amnesty?
Individuals, businesses and other entities with Pennsylvania tax delinquencies as of June 30, 2009, are generally eligible to participate in the amnesty program.
Non-filed tax returns or reports, as well as unpaid, under-reported or un-established taxes, whether known or unknown to the PA Department of Revenue, constitute eligible delinquencies.
Consequences for Not Participating in Amnesty?
If you are eligible for the tax amnesty program, but choose not to participate, the department will add a 5 percent non-participation penalty to your balance due.
Our firm recently successfully filed several client’s state amnesty applications.
For more information see:
http://www.portal.state.pa.us/portal/server.pt/community/revenue_home/10648/amnesty/609682
Medicare
Medicare Part A covers up to 100 days of “skilled nursing” care per spell of illness. However, the definition of “skilled nursing” and the other conditions for obtaining this coverage are quite stringent, meaning that few nursing home residents receive the full 100 days of coverage. As a result, Medicare pays for only about 9 percent of nursing home care in the United States.
Medicaid
For all practical purposes, in the United States the only “insurance” plan for long-term institutional care is Medicaid. Lacking access to alternatives such as paying privately or being covered by a long-term care insurance policy, most people pay out of their own pockets for long-term care until they become eligible for Medicaid. Although their names are confusingly alike, Medicaid and Medicare are quite different programs. For one thing, all retirees who receive Social Security benefits also receive Medicare as their health insurance. Medicare is an “entitlement” program. Medicaid, on the other hand, is a form of welfare — or at least that’s how it began. So to be eligible for Medicaid, you must become “impoverished” under the program’s guidelines.
Also, unlike Medicare, which is totally federal, Medicaid is a joint federal-state program. Each state operates its own Medicaid system, but this system must conform to federal guidelines in order for the state to receive federal money, which pays for about half the state’s Medicaid costs. (The state picks up the rest of the tab.)
This complicates matters, since the Medicaid eligibility rules are somewhat different from state to state, and they keep changing. (The states also sometimes have their own names for the program, such as “MediCal” in California and “MassHealth” in Massachusetts.) Both the federal government and most state governments seem to be continually tinkering with the eligibility requirements and restrictions. This has most recently occurred with the passage of the Deficit Reduction Act of 2005 (the DRA) which significantly changed rules governing the treatment of asset transfers and homes of nursing home residents. The implementation of these changes will proceed state-by-state over the next few years. The rules for gaining eligibility to the program are explained in detail in this Blog. But to be certain of your rights, consult an expert. He or she can guide you through the complicated rules of the different programs and help you plan ahead.
Those who are not in immediate need of long-term care may have the luxury of distributing or protecting their assets in advance. This way, when they do need long-term care, they will quickly qualify for Medicaid benefits. Giving general rules for so-called “Medicaid planning” is difficult because every client’s case is different. Some have more savings or income than others. Some are married, others are single. Some have family support, others do not. Some own their own homes, some rent. Still, a number of basic strategies and tools are typically used in Medicaid planning.
New York has new legislation authorizing a form of tax amnesty program.
According to a New York press release, the legislation authorizes what New York calls the PAID (Penalty and Interest Discount) program.
Apparently, PAID gives taxpayers with older unpaid bills the chance to save up to 80% of the penalty and interest they owe. Bills less than three years old are not eligible under this program.The program will start January 15, 2010.
To take advantage of the program’s savings, eligible taxpayers must make all payments by the program’s expiration date, March 15, 2010.
If they don’t pay in full by that date:
• the opportunity for these savings will be lost forever
• any unpaid tax debts will continue to accrue interest at the full statutory rate.
Benefits of PAID Program include saving:
• 80% of accrued penalty and interest on unpaid bills issued on or before December 31, 2003
• 50% of accrued penalty and interest on unpaid bills issued after December 31, 2003 and on or before December 31, 2006.
In the state’s press release, they mention they are increasing their enforcement efforts to collect unpaid bills. If you act now, you may be able to avoid collection actions in the future.
In January 2010, New York will mail letters to taxpayers who qualify for the PAID discounts, inviting them to participate in the program.
As of January 15, 2010 you’ll be able to access New York’s site (below link) to participate in the program, including checking to see if you have eligible bills.
Our firm recently successfully filed several client’s state amnesty applications.
For more info see: http://www.tax.state.ny.us/nyshome/paid.htm
When Congress failed to extend the Federal estate tax prior to the end of 2009, the tax was automatically repealed effective January 1, 2010. But what appears to be cause for celebration for many, may prove just the opposite.
Congress instead substituted a new system of taxation that will potentially collect more taxes from many of our clients than the estate tax.
We have the following observations, insights and recommendations for people to understand and favorably navigate what has transpired:
What Happened:
The 2001 tax act, signed into law by President George W. Bush, gradually reduced the maximum Federal estate tax rate from 55% to 45% and increased the amount that could pass free of Federal estate tax from $675,000 per person in 2001 to $3.5 million per person in 2009. Then, in 2010 only, the 2001 tax act repeals the estate tax, only to bring it right back in 2011, but at a much reduced exemption of $1 million per person and a maximum tax rate of 55%.
A New Tax Replaces the Estate Tax:
Prior to 2010, when a person died, the income tax basis of the deceased person’s property was “stepped up” to its value at the date of death. Therefore, no matter how much the value of property appreciated during a person’s lifetime, his or her heirs could sell those assets following the person’s death without paying income tax on that appreciation. In 2010, when there is no estate tax, the 2001 tax act limits the amount of property for which income tax basis can be “stepped up”. Accordingly, while there may be no estate tax, property for which the income tax basis is not stepped up will instead be subject to capital gains tax federal capital gains tax (15% federal and state capital gains tax (7.5% in New Jersey)) on all appreciation that occurred during the deceased person’s lifetime.
What Will Congress Do?
That is the great unknown. Almost everyone assumed from the time the 2001 tax act was enacted that Congress would act before the end of 2009 to remedy the situation. Whether Congress addresses this issue before the estate tax is reinstated next year with its higher tax rate and significantly reduced exemption will undoubtedly be affected by numerous factors including the urgency of other legislative priorities and any perceived political value of raising the estate tax as an issue in 2010 election campaigns.
What Individuals Should Do?
The repeal of the Federal estate tax can adversely affect individuals in several ways. For married couples, it is a common for estate planning documents to use a mathematical formula to divide assets upon the death of the first spouse to die in a manner designed to minimize Federal estate tax. For many, however, these formulas will not permit a surviving spouse to receive a limited “stepped up” tax basis otherwise permitted by the 2001 tax act, thereby causing income taxes to unnecessarily result. Likewise these formulas may result in property being divided among beneficiaries in a much different manner than intended, or even unintentionally disinheriting a beneficiary. The expectation of the estate tax coming back in 2011, but at higher rates and a lower exemption amount, also places a premium on new planning to avoid additional estate taxes that would otherwise result. Individuals should meet with an estate planning professional as soon as possible to promptly institute estate plan revisions necessary to counteract these adverse consequences.
New Jersey law (P.L. 1998, c. 57) which was signed into law on July 24, 1998, conformed the New Jersey Gross Income Tax treatment of Roth IRAs to the Federal Income Tax treatment. Beginning in 1998, contributions to Roth IRAs are not deductible but qualified distributions can be excluded from New Jersey gross income.
Therefore, New Jersey also conforms to the Federal Tax Increase Prevention and Reconciliation Act of 2005 provision regarding the Federal Income Tax reporting of a distribution from an IRA which the taxpayer converts into a Roth IRA this year in 2010. If a taxpayer chooses to defer the income resulting from a Roth IRA conversion for Federal purposes to 2011 and 2012, the same deferral will be honored for New Jersey gross income tax purposes. However, if a taxpayer chooses to report the entire income resulting from a Roth IRA conversion in 2010, the taxpayer will also be required to report the income for New Jersey gross income tax purposes in 2010.a
Currently, the law imposes a graduated inheritance or succession tax ranging from 11% to 16% on the real or personal property with a value of $500.00 or more to certain beneficiaries.
TAXABLE ASSETS
All jointly personal and real property is exempt from the probate process. But all property, whether jointly or individually held, is taxable provided that is not categorically exempted; e.g. (marital residence).
TAXES THAT INFLUENCE YOUR WILL
Three kinds of taxes can influence the provisions of your Will; Inheritance, estate, and gift.
An inheritance by Will, by law, by surviving joint owner, or from life insurance is not income and is not subject to income tax.
BENEFICIARY CLASSES
Inheritance tax law recognizes five beneficiary classes ranging from “A” to “E” as follows:
- Class “A” – father, mother, grandparents, husband, wife, child or children of a decedent, adopted child or children, issue of any child or legally adopted child of a decedent, mutually acknowledged child and step child.
- Class “B” – Eliminated by statute effective July 1, 1963.
- Class “C” – Brother or sister of decedent, wife or widow of a son of decedent, or husband or widower of a daughter.
- Class “D” – Every other transferee, distributee or beneficiary.
- Class “E” – Includes transfers for public or charitable purposes to the State of New Jersey or any of its political subdivisions, an educational institution, church, hospital, orphan asylum, public library, and certain other nonprofit agencies, etc.
In estates of decedents dying on or after July 1, 1988, only beneficiaries in Classes “C” and “D” are subject to inheritance tax.
TAX RATES
Each class of beneficiaries has its own separate rate schedule.
- Class “A” – all Class “A” beneficiaries are totally exempt from tax.
- Class “B” – was eliminated by P.L. 1962, c. 61.
- Class “C” – were granted a $25,000 exemption on estates of decedents. After the initial $25,000 exemption, the rates range from 11% on the next $1,075,000 to 16% for any transfer over $1 ,700.000.
- Class “D” – the law imposes a tax on the transfer of property with a value of $500.00 or more. The rates range from 15% on the first $700,000 to 16% for amounts over $700,000.
EXEMPTIONS
In addition to the exemptions listed under “Tax Rates”, no tax is imposed on:
- Transfers under $500.00
- Life insurance proceeds to a named beneficiary
- Charitable transfers for the use of any educational institution, church, hospital, orphan asylum, public library, etc.
- Transfers for public purposes made to New Jersey or any political subdivision of the State.
- Payments from the New Jersey Public Employees’ Retirement System, the New Jersey Teachers’ Pension and Annuity Fund and the New Jersey Police and Fireman’s Retirement System.
- Federal civil service retirement benefits payable to a beneficiary other than the estate.
- Annuities payable to survivors of military retirees.
WHEN TAXES ARE DUE
An inheritance tax return must be filed on the transfer of real or personal property within 8 months after the death of either:
- A resident decedent for the transfer of real or tangible personal property located in New Jersey or intangible personal property wherever situated, or
- A nonresident decedent for the transfer of real or tangible personal property located in New Jersey. No tax is imposed on nonresident decedents for intangible personal property wherever located.
- A tax return must be filed whenever any tax is due. The tax is a lien on all property for 15 years, unless paid sooner or secured by acceptable bond. Interest on unpaid tax will accrue at the rate of 10% a year.
AMENDMENTS TO THE ORIGINAL RETURN
In the case of both resident and non-resident estates, any assets and/or liabilities not disclosed in the original return and all supplemental data requested by the Transfer Inheritance Tax Branch is to be accompanied by an affidavit form and attested to by the duly authorized statutory representative of the estate, next of kin, or beneficiary certify in detail a description of the reasons for failure to disclose same in the original return and filed directly with the Transfer Inheritance Tax Branch.
ESTATE TAX
In addition to the inheritance tax on the estate of certain resident decedents, New Jersey imposes an estate tax. The estate tax is designed to absorb any portion of the credit allowance under the Federal estate tax that is not fully taken up by the aggregate amount of all death taxes paid to any state, U. S. territory or District of Columbia. This tax is the difference, if any, determined by subtracting the amount of the inheritance, legacy and succession taxes paid to this state and elsewhere from the allowable credit. Even estates that are partially or fully exempt from inheritance tax may be subject to New Jersey estate tax.
WAIVERS
Certain property in the name of or belonging to the decedent cannot be transferred without the written consent of the Director, Division of Taxation. This consent, commonly known as the “waiver”, will not be granted until any tax due has been paid or provided.
EXCEPTIONS
Not withstanding the waiver provisions above, any financial institution may release up to 50% of any bank account, certificate of deposit, etc. to the survivor, in the case of a joint account, the executor, administrator or other legal representative of a RESIDENT decedent’s estate. This procedure is referred to as a BLANKET WAIVER. This procedure is not available for the transfer of stocks and bonds. For a detailed explanation see N.J.A.C 18:26-11.16.
A SELF EXECUTING WAIVER, FORM L-8 has been created for Class “A” beneficiaries in the estates of RESIDENT decedents. This form may be used in two instances:
- Transfers to a surviving spouse in estates of decedents dying on or after January 1,1985.
- Transfers to a surviving spouse or any other Class “A” beneficiary in estates of decedents dying on or after July 1, 1988.
Use of this form MAY eliminate the need to file a formal Inheritance Tax return.
This form is to be filed with the financial institution which will then be authorized to release the subject asset without the necessity of receiving a waiver from the Division.A REQUEST FOR A REAL PROPERTY TAX WAIVER, FORM L-9, has been created for Class “A” beneficiaries in the estates of RESIDENT decedents. This form may be used in two instances:
- Transfers to a surviving spouse in estates of decedents dying on or after January 1,1985 and the decedent’s interest was in the decedent’s name alone.
- Transfers to a surviving spouse or any other Class “A” beneficiary in estates of decedents dying on or after July 1,1988 and the decedent’s interest in the real estate was in the name of the decedent alone or with any Class “A” beneficiary.
Use of this form MAY eliminate the need to file a formal Inheritance Tax return.
This form is to be filed directly with the Transfer Inheritance Tax Branch. If the form is in order the necessary waiver/waivers will be promptly issued.
NEITHER THE L-8 NOR THE L-9 may be used where it is claimed that a relationship of mutually acknowledged child exists or for the release of a safe deposit box.
PARTIAL RELEASE OF FUNDS
Banks, savings and loan associations, and building and loan associations may release 50% of all funds on deposit with them to the proper party prior to the issuing of a waiver. The full amount on deposit as of the date of death of the decedent must be listed in the inheritance tax return.
REAL PROPERTY
Unpaid inheritance taxes constitute a lien on real property and tax waivers are required to transfer real estate. However, real property held by husband and wife as “tenants by the entirety” (names of both husband and wife appear on the deed) in the estate of the spouse first dying need not be reported and may be transferred without waiver, regardless of the date of death.
In addition, a membership certificate or stock in a cooperative housing corporation held in the name of a decedent and a surviving spouse as joint tenants with right of survivorship is also exempt, but a waiver is required for this transfer.
AUTOMOBILES. HOUSEHOLD AND PERSONAL EFFECTS
Waivers are not required for automobiles, household goods, accrued wages or mortgages, but these must be reported in the return.
FORMS, INSTRUCTIONS
Necessary forms and instructions concerning the procedure to be followed in completing an inheritance tax return may be obtained at the Division of Taxation Regional Office. There are two offices where residents of Middlesex County can obtain these forms. The address of the offices are:
Inheritance Tax
CN-249
Trenton, NJ 08646
(609) 292-5033
FEDERAL ESTATE TAX RETURN
The law requires that a copy of the Federal estate tax return be filed with the Inheritance Tax Branch within 30 days after the filing of the original with the Federal government. Also, the Branch must receive a copy of any communication from the Federal government making any final change in the return, or confirming, increasing or reducing the tax shown to be due.
UNIFIED ESTATE AND GIFT TAX CREDIT
A single unified credit against both estate and gift taxes is available. This credit, to the extent available, reduces dollar-for-dollar estate and gift taxes computed under the unified rates schedule.
No estate or gift taxes would be payable on an estate which is valued at less than $3,500,000.
Please note: The tax rate is subject to change by Congress.
FEDERAL ESTATE & GIFT TAX
Contemplation of Death
Gifts made within three years of death are not included in donor’s gross estate; exceptions are life insurance, transfers with a retained life estate, transfers and transfers under powers of appointment; gifts made within three years of death are included in gross estate to determine qualification for current use evaluation, deferred payment of estate tax and Section 303 redemptions, etc.
GIFT TAX
(Annual Exclusion)
New Jersey does not levy a tax on gifts, except in anticipation of death. Any gift made within 3 years of death is presumed to be in anticipation of death and may be subject to New Jersey Inheritance Tax.
An individual may give an amount up to $13,000 to any one person during a calendar year, exempt from tax. A married couple can give up to $26,000 to a person yearly without tax. Any number of tax-free gifts may be made during a year.
If you make gifts to one person of more than $13,000 during the calendar year, file a Federal Gift Tax Return with the District Director of Internal Revenue.
FEDERAL MARITAL DEDUCTIONS
Presently, unlimited amounts of property can be transferred between spouses without estate or gift tax.
Note: Certain transfers of an interest in property do not apply under this deduction. To determine whether this last note applies to your particular case, you may wait to contact your attorney or the Internal Revenue Service.
FILING FEDERAL ESTATE TAX RETURNS
Form 706 must be filed and any tax due must be paid within 9 months. The nearest Internal Revenue office will furnish tax Form 706:
If your estate is subject to Federal Estate Tax, you may want to seek professional assistance in estate planning. Consideration of tax aspects can save heirs money.
When a loved one reaches a point in his or her life where, due to either old age or disability, he or she cannot effectively care for personal, medical and financial matters, it may be wise to consider a legal guardianship or conservatorship. These are court-ordered legal relationships in which an appointed person or persons, called a “guardian” or “conservator,” is charged with attending to the personal or financial needs of another, called the “ward” or the “conservatee.” In the context of elder law, a spouse or child is typically appointed as legal guardian or conservator and vested with various powers as determined by the court. A guardian may now perform asset preservation planning.
The appointment of a legal guardian is something that’s not taken lightly by the court because after a case review, the ward is stripped of many decision-making powers. However, the legal guardian will be limited to only those decisions that will meet the level of the ward’s incapacity. Some of these may include, but not be limited to:
Choice of where the ward resides
Acceptance or denial of medical care
Control of food, clothing and shelter
Control of financial and contractual affairs
Estate and asset preservation planning
Restriction of ward’s civil rights and personal freedom