06 Jun Inheriting money from out-of-state relative

Q. I am power of attorney and sole beneficiary for a cousin who now lives in New York state while I live in New Jersey. What are the tax consequences for the estate that is worth about $500,000?
— Cousin

A. We’re glad to hear you want to understand more about your role in your cousin’s estate.

A power of attorney is a document that authorizes the designated agent, known as the attorney-in-fact, to engage in financial transactions for the principal, who is the person who gave the authority to the agent.

That means you’re the person who will step up and manage your cousin’s affairs during his lifetime if he or she is unable to, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

A power of attorney ends upon the death of the principal, she said.

Next, taxes.

Whitenack said there are two different types of taxes that may be imposed by a state where the person is a resident at the time of death.

First, an estate tax may be imposed on the estate of a person before the property is transferred to the beneficiary. Then there’s the inheritance tax, which is levied on certain individuals who inherit property from an estate, Whitenack said.

“Whether a state estate tax or inheritance tax must be paid is dependent on the laws of the state where the person was a resident at the time of death rather than the state where the beneficiary lives,” Whitenack said.

She said the estate of a person who is a resident of New York and dies between April 1, 2017 and Dec. 31, 2018 is subject to a New York estate tax only if the value of the estate exceeds $5.25 million. On Jan. 1, 2019, the New York estate tax exemption will equal the federal estate tax exemption which is projected to be about $5.9 million, she said.

Based on this, it does not appear that a New York estate tax will be imposed on this estate, Whitenack said.

But because you are cousins, you could face an inheritance tax.

New York doesn’t have an inheritance tax.

“If the reader’s cousin owns real property in New Jersey, however, an inheritance tax of 15 percent would be imposed by the state of New Jersey on the value of that real property because a cousin is a Class D beneficiary,” Whitenack said.

When you inherit the estate assets, Whitenack said, there will be a step up in basis for any appreciated assets. That means there should be no capital gains tax on such assets if they are disposed of for the date of death values.

Be sure to speak to a qualified estate planning attorney to be sure of the consequences for you and your cousin’s estate.

Email your questions to .

This post was first published in June 2017.