14 Jun My adult kids inherited a home. What taxes are due?

Q. My sister passed away. Her only possession was her home which still has a mortgage and she left it to my son and daughter, her niece and nephew. What inheritance tax will there be?
— Mom

A. We’re sorry to hear about the death of your sister.

The first issue to address is whether the will addresses how inheritance taxes will be paid. It may say the estate itself will pay it before anything is paid out to beneficiaries, or it may not address the issue.

Nieces and nephews are considered Class D beneficiaries, said Nancy Heslin Reading, an estate planning attorney with Reading Law Firm in Newton.

The inheritance tax rate is between 15 and 16%, depending on the amount transferred.

You may face challenges if there is not enough liquidity in the estate, separate from the house. For example, you said there was a mortgage, but you didn’t say how that would be handled.

If the beneficiaries plan to keep the home, they would need to take an additional mortgage, Reading said, and they would also need to find enough cash to pay the inheritance taxes due.

“If the deed is transferred to the niece and nephew, the executor should hire a licensed real estate appraiser — not a real estate agency — and pay for a date of death appraisal on the property,” she said. “That appraisal will determine how much capital gains was wiped out at your sister’s passing, and set a new basis for capital gains purposes for the niece and nephew.”

Some people may ask what happens if nothing is done and someone just moves into the house.

“The inheritance tax will come due eight months from the date of death and with it isn’t paid, liability for the unpaid tax will attach to the executor personally, often in the form of a certificate of debt attached to some asset belonging to the executor, such as his or her house,” Reading said.

To make sure this is handled correctly, consider speaking to an estate planning attorney who can guide you through the process.

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This story was originally published on June 14, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.