27 Nov My aunt’s estate is getting 9/11 fund check. Are taxes owed?

Q. My aunt passed away in 2014 and I was named executor of her estate. As her niece, I paid a 15% inheritance tax on the value of the estate and did all the IRS filing. Since then, we sued the 9/11 victim fund on my aunt’s behalf. The estate will be awarded a small sum of money, but more than $500. I will have to open a checking account for the finds. Do I have to file a tax return and will the award generate a 15% tax liability?
— Executor

A. We’re sorry to hear about your aunt.

As you stated, because you are a Class D beneficiary in relation to your deceased aunt, most of what you receive is subject to inheritance tax.

There are, however, some assets that are exempt from inheritance tax such as life insurance proceeds payable to a named beneficiary and the proceeds of certain federal and state pension plans, said Yale Hauptman, an estate planning attorney with Hauptman and Hauptman in Livingston.

He said New Jersey has also specifically exempted awards obtained from the Sept. 11 Victim Compensation Fund from all state and local taxes which includes inheritance tax.

Normally, he said, any assets obtained after the filing of the inheritance tax return would trigger the need to file an amended return and pay the additional tax.

“Provided the assets could not be determined by the time the tax return was due, which is eight months after death, the state will waive the 10% interest penalty for late payment,” Hauptman said. “But again, in your case, the Sept. 11 Victim Fund award is exempt so there is no need to file an amendment or pay any tax.”

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This story was originally published on Sept. 27, 2020.

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