Q. I am waiting on inheritance from my great uncle who passed in 2015. I was one of the beneficiaries of his estate, which is in probate court. Another niece is the executor and she said it’s taking so long because she doesn’t know if she will have to pay more inheritance tax for New Jersey. What do I need to know?
A. We’re sorry to hear about your uncle.
The New Jersey inheritance tax is due eight months after the decedent’s death, said Catherine Romania,an estate planning attorney with Witman Stadtmauer in Florham Park.
She said unless your late uncle in his will provided otherwise, inheritance tax is deducted from the bequest prior to distribution to the beneficiary. So you, as beneficiary, would receive the bequest less the inheritance tax, which the executor pays directly to the state.
“If the bequest is not cash, the executor will collect the tax from the beneficiary based on the value of the property before making distribution,” she said.
New Jersey holds the fiduciary – the executor, administrator or trustee of a trust – personally liable for the tax if distribution is made to a beneficiary before the tax is paid, Romania said.
This is perhaps the reason for the executor’s hesitancy in making the distribution in this case.
Inheritance tax remains a lien on the decedent’s property for 15 years unless paid, Romania said. However, once the tax is paid, New Jersey will issue a Notice of Assessment indicating whether additional tax is due or showing zero tax is due.
The state will also issue waivers (Forms 0-1), releasing the lien for taxes on the decedent’s New Jersey property, which could include New Jersey bank and brokerage accounts, real property located in New Jersey, New Jersey stocks and bonds, she said.
You need to know whether the executor has paid the inheritance tax and whether the waivers have been issued.
If so, outright bequests may be distributed and bequests directed to be held in trust are subject to the terms of a trust, if any, she said.
“The executor can further protect herself from the assessment of additional tax by holding a small reserve to pay any additional tax due and/or having each beneficiary execute a refunding bond which states that if any additional tax is due on his or her inheritance, then such beneficiary agrees to pay such tax,” Romania said. “If after the waivers have been issued, you sign a refunding bond and give it to the executor, you can demand your bequest and bring an action in the Superior Court if the bequest is not paid.”
You can learn more about how the inheritance tax works here.
Email your questions to moc.p1550323616leHye1550323616noMJN1550323616@ksA1550323616.