Questions the Executor should ask the Estate’s Accountant

The house is sold, the estate’s debts and bills have all been paid, the accounting has been presented to the beneficiaries, they have signed off on the Release & Refunding Bonds, and now it’s time for the estate’s Executor or Administrator to distribute the estate to the beneficiaries according to the Will or according to the requirements of the law. The estate may have acquired dividends or interest or rents on which income tax must be paid. An income tax return has to be filed for the Estate if more than $600 in gross income was received, and in fulfilling his/her fiduciary duty, the Executor/ Administrator wants to be sure to investigate all available income-tax saving opportunities.

Here are a few of the questions to ask when you call the estate’s accountant: :

  1. What is the estate’s expected marginal tax bracket?
  2. Is it beneficial to pass the estate’s income and losses (if there is a loss on sale of assets such as stock or real property) through to the beneficiaries?
  3. Can income or loss be passed through in a year that the property isn’t actually distributed?
  4. If assets have to be distributed out in order to pass thru the tax liability, which plan saves the most taxes — distributing or holding?
  5. Is there any limit on the amount of losses that can be passed through to the beneficiaries?

Serving as Executor or Administrator is a job with many responsibilities. It’s vital that the fiduciary get advice on all of the steps required so that the interests of the beneficiaries are protected, and so that the fiduciary can be protected as well.

Call us for complete advice “A to Z” about the estate administration for decedents’ estates … 732-382-6070

Watch out for Transfer Inheritance Tax when you do your estate planning

Most of the publicity in the news concerning changes to New Jersey’s “death tax” has focused on its raising of the estate tax thresholds. Now, if a person dies and has less than two million dollars in his or her estate, there will be no estate tax regardless of who is receiving that bounty. Not so for the Transfer Inheritance tax, which is based on the relationship of the recipient to the deceased person.  Inheritance by a lineal ancestor or descendant — parent, child, grandchild, even a step-child — incurs no inheritance tax. Same goes for inheritance by the spouse. All of these people are considered to be “Class A Beneficiaries.” However, tax will be imposed to some extent on inheritance by others — brothers & sisters (“Class C”), nieces, nephews, cousins, friends, aunts, uncles, and even the grandchildren of step-children (“Class D”). This means that careful planning must be done.

To avoid delays in estate administration, the executor may need cash to pay the inheritance tax when some of the folks inheriting under a Will or through a non-probate arrangement such as a Pay on Death account are not Class A beneficiaries. If all of the assets are tied up in a non-probate format [either/or accounts, joint accounts, pay on death, or other beneficiary designations) this will cause obvious problems. Delay in payment of tax can cause interest and penalties to accrue. The recipient of the “joint” account may not cooperate to provide cash to the estate for the tax.

If the non-Class A recipient is receiving his/her inheritance pursuant to the Will, the Will should specify whether the tax is to be drawn out of that bequest or should be just rolled into the taxes and expenses that are paid from the residue of the estate. Precise drafting of the Will is so important, so that the intentions of the deceased are known.  We always say that “careful planning can prevent a crisis,” and careful drafting can avoid time, expense, and battles when it comes to estate administration.

Call for advice concerning estate planning and estate administration ….


When the caregiving ends, new problems to tackle as Executor

In our legal practice, we advise  many family caregivers who are managing and supporting the lives of their frail loved ones, and  we also advise executors in the administration of estates. Very often, the person who was our client in their role of caregiver is now the client in the role of executor. It’s a very tender time when that transition occurs.

They  may have spent years involved with their parent who  had dementia or chronic illness, and the client’s life has been intertwined with the parent’s on a day to day basis. It’s been an emotional roller coaster for several years. The sense of self, role and identity have been strongly defined by the responsibilities of the caregiving. In these situations, the loss of the parent often leaves a gaping void that makes them feel as if they are drowning. They have trouble managing their day to day life because the focus of their activity is gone. There is a deep grieving process. They may have become isolated. And now, other family members are expecting them to jump and handle all  the dry and technical tasks of wrapping up the estate and distributing the money.

The challenge is that the executor has duties under the law to marshall the assets, resolve or pay the creditors, and distribute the estate in a reasonable period of time. There may be ambiguities in the Will that require court action to resolve. It may be that a beneficiary is disabled and a trust has to be established for them. It’s a big job and there can be serious repercussions when the job isn’t done.

There is help available. The National Family Caregivers Association has a Bereavement Program that could be of great use to someone caught in this situation. Ask for their article “Who am I Now that I am not a Caregiver?” Check out this website at AARP, Certain local family counselling services may be specially designed to help you with this unique issue, and enable you to start moving ahead, one step at a time..

Call us for advice and assistance with estate administration, probate and executor work … 732-382-6070

A Cautionary Tale: Estate distribution is “income” that affects eligibility for NJ Homestead Rebate

A New Jersey homeowner’s  acceptance of a $90,000 inheritance from his late sister’s estate in 2014 resulted in loss of his eligibility for the Homestead Rebate, because the inheritance was countable as “income.” . Although receipt of an inheritance by an estate beneficiary is not “income” under NJ or federal income tax regulations, it is still considered income under the NJ Homestead Rebate Act.

The Superior Court, Appellate Division, affirmed the decision of the NJ Division of Taxation in an unpublished decision called Burns v. Dir., Div. of Taxation, Tax Ct. (DeAlmeida, J.T.C.), case #  35-5-8269. Evidently, the homeowner had not wanted to receive the distribution from the Estate and decided he would share it with the family. However, instead of Disclaiming the assets — which would have caused the money to pass as if he had predeceased his sister — he received the distribution in 2014, placed it into his bank account, and then in 2015, gave away $78,000 of this money to other relatives by issuing checks from the account.  

The Homestead Rebate program uses a definition of income that is different than you find in the income tax code. It is similar to what you find in the PAAD program (Prescription Assistance for the Aged and Disabled). For 2014,  the income limit to maintain base year taxes was $85,553 and the income limit to receive a reimbursement was $70,000. In the case I’m discussing, the homeowner’s receipt and use of the $90,000 put him over the limit for the entire program, so he could get no rebate.

In my experience, it’s not uncommon for people to choose to share an inheritance with others. However, there are many laws that impact on that decision, and as we see here, the decision can have an adverse effect on the nice donor. Careful consideration with an attorney of available strategies could have prevented this problem, or at least forewarned the homeowner of what was to come.

Call us for legal advice on entitlement to different government benefit programs, and for estate & trust administration advice and service … 732-382-6070



“Avoiding Probate” can cause more problems than it prevents

You may have heard that you should set things up to “avoid probate.” Bank or brokerage personnel may have recommended that you ” add a pay on death beneficiary, or a joint owner, so you can avoid probate.” There are fallacies built into that advice which can lead to unintended complications after death.

Estate administration is a process that can include many elements that aren’t known until after the death. These may include: the necessity to file & pay estate and inheritance taxes; settling up debts; selling real estate; paying taxes & costs to maintain property while it’s on the market; preparing and filing the final income tax returns; collecting money that’s owed to the estate by a family member or someone else; selling a small business; finding missing heirs. It can easily take a year to get everything resolved.

The probate of a Will at the County Surrogate in NJ — and the mailing out of the Notice of Probate to the heirs at law and the people named as beneficiaries in the Will — is the minimal initial step in the process. Everything after that is called “administration.”  The Executor of the Estate (who’s named in the Will) or the Administrator appointed by the Court (if there was no Will or the Executor is unable to serve) needs to have access to cash to fund an estate account so that all of these tasks can be handled smoothly.The Executor handles the assets that are in the decedent’s name along, and can liquidate them and transfer the funds to the estate account to use for expenses.

With very limited exceptions, every asset owned by the decedent would be included in the value of the estate when calculating death taxes, even if it has a pay-on-death beneficiary, and having the assets in this non-probate asset form doesn’t eliminate the need for the Executor to deal with the issues just listed.

On many occasions I have had to advise Executors in cases where all of the assets except the house were jointly owned or were set up as pay-on-death to various members of the family. At the time of death, those assets are presumed to be the property of the person whose name was placed on the account. They are not presumed to be “estate property” to be used for expenses. This means that unless those people choose to either give the money back to the estate (by disregarding their ownership) or lend the cash to the estate, the Executor won’t have cash for operations. If one child agrees to give money back and the others don’t … you can see the problem. When the estate is subject to inheritance tax or estate tax, there can be yet further problems because the Executor is obligated to remit the tax, but doesn’t have access to funds for that purpose. If the pay-on-death owner isn’t really known to the Executor, the Executor may need to chase them down to contribute their pro rata share of funds for the tax. An unpleasant task at best.

There are circumstances where it is appropriate and reasonable — from a legal standpoint — to place beneficiaries or co-owners on certain assets. The best estate plan for a married person may be a terrible plan for an unmarried or widowed person. There is no “one size fits all.” We call it “estate planning” because the client and the lawyer together evaluate the estate  — big or small — and plan for ease of administration. The takeaway is that making everything a joint or POD asset to simply “avoid probate” won’t necessarily “make things easier,”  can often prove to be counterproductive, and can cause greater expense, delays and problems for the estate in the long run.

For legal advice on individualized Estate Planning, and for assistance with Estate Administration, call 732-382-6070