Sale of Real Property from an Estate

There are some special issues to consider when the seller of real estate is the estate of a decedent.

Real estate held by a decedent’s estate is subject to liens for the payment of any New Jersey Transfer Inheritance Tax, New Jersey Estate Tax, Federal Estate Tax and debts of the decedent.

The N.J. Transfer Inheritance Tax is a state tax imposed on the transfer of property made upon the death of a New Jersey resident and certain non-residents, or made by such a decedent in contemplation of death. N.J.S.A. 54:34-1 et seq. The Inheritance Tax lien lasts for a period of fifteen years following the date of death. N.J.S.A. 54:35-5. This lien is discharged when the tax is paid or a bond given to the State. The N.J. Division of Taxation issues a tax waiver which is then recorded in the county clerk’s office of the county in which the property is situated. Tax waivers can be obtained before a return has been audited by the State upon submission of the estate’s Inheritance Tax return and payment of an amount deemed sufficient by the Inheritance Tax Bureau of the N.J. Division of Taxation.

New Jersey also imposes an Estate Tax on estates of resident decedents dying after December 31, 2001 if the gross value of the estate exceeds $675,000 . N.J.S.A. 54:38-1 et seq. A New Jersey estate may be subject to the N.J. Estate Tax even if it is not subject to the Federal Estate Tax. The N.J. Estate Tax also becomes a lien against property. The N.J. Estate tax lien exists as a lien against the property as of the date of decedent’s death until paid. N.J.S.A. 54:38-6. This lien can be discharged in the same manner as the N. J. Transfer Inheritance Tax lien by the issuance of a tax waiver from the N. J. Division of Taxation.

The Federal Estate Tax may be imposed on estates in the amount of $2.0 million for decedents dying in 2007 ($3.5 million commencing 2008). The Federal Estate Tax becomes a lien on the property in the estate for ten years from the date of death. I.R.C. §6324 (a)(1). To discharge the lien, a Certificate of Release of Estate Tax Lien can be obtained from the IRS and recorded with the County Clerk in the county in which the property is located.

If a tax waiver or release of lien cannot be obtained prior to closing, the buyer’s title company will frequently agree to escrow funds to cover any possible liability and to insure that the selling estate will obtain and record the waiver or release.

Finally, real estate of a decedent is liable for the debts of the decedent for one year after date of death. N.J.S.A. 3B:22-22. If the property is being sold within a year of decedent’s death, the buyer’s title company with generally require information concerning the assets and debts of the estate and a bond from the executor before agreeing to insure the property.

Anna Nicole Smith: A Model for Bad Estate Planning

Anna Nicole Smith rose to fame as a
model for Guess Jeans and Playboy
magazine. Now, her death has given
her newfound fame as a great model for
terrible estate planning.
Forget the fact that you can’t visit a
supermarket without seeing gossip about
her life and death. When push comes to
shove, Anna Nicole, the human being,
was a single mother who was embroiled
in a bitter legal battle over the estate of
her ex-husband, and was suffering from
the sudden and unexpected death of her
son just three days after the birth of her
daughter. Her legal situation becomes
nearly as tragic as her life. She sadly didn’t
take proper measures to protect her baby
daughter from opportunists finagling to
acquire custody in order to have access to
her inheritance.
THE TEACHINGS OF ANNA NICOLE
What can we learn from Anna Nicole’s
tragedy?
Lesson 1: Keep your estate plan current.
Anna Nicole’s will was prepared in 2001,
before she ever conceived of daughter,
Dannielynn. The will leaves her entire
estate to her son, Daniel, and specifically
disinherits any offspring born after the will
was signed. Because she never updated
the will after her son died and her daughter
was born, the document is invalid.
Lesson 2: Hire an experienced attorney. A
licensed attorney in the State of California
prepared Smith’s will. But did he have
extensive probate experience? A qualified
and savvy attorney would have had the
foresight to protect her in the event that she
survived her son.
Lesson 3: Select a guardian. It’s always
a hard decision to make, because no one
can raise your children as well as you can.
But it’s imperative to select someone. You
can always change it later.