New Jersey Probate Overview
Probate is a court-managed lawful procedure that may be required after somebody passes away. It gives somebody power to gather the deceased person’s benefits, pay debts and charges – including taxes – and eventually transfer assets to the people who inherit them. During the probate process, the validity of a will is being proven. If the deceased did not keep a will, there is no need for the process to take place, and the person who will be in charge of distributing assets can be appointed as Executor/Administrator, the steps of which will be outlined on this page.
Assets in a Probate
Probate court proceedings aren’t always necessary. Usually, they are required only if the deceased person owned assets in his or her name alone. Other assets, called “non-probate” property, can probably be transferred to their new owners without probate. Common non-probate assets include:
- assets the deceased person owned with someone else in joint tenancy or tenancy by the entirety, which pass automatically to the surviving owner
- assets for which the deceased person designated a beneficiary outside of the will—for example, IRAs or 401(k) plans for which the deceased person named a beneficiary, or payable-on-death bank accounts
- life insurance proceeds or pension benefits that are payable to a named beneficiary
- assets held in a revocable living trust
Probate in New Jersey is taken care of by the surrogate’s court in the county in which the perished individual lived. In the event that all goes easily, the procedure should take less than a year.
Appointing an Executor or Administrator
If there is a will in which you are named as executor, and probate is necessary, you can be appointed as “executor” of the estate, as soon as 10 days after the death, by:
- Going to the Surrogate’s Court in the county in which the deceased person lived;
- Supplying the will and a certified copy of the death certificate. If the will isn’t self-proving ¹, one of the two witnesses who watched the deceased person sign it and signed the will themselves must appear in court (or submit a sworn statement) as well.
- If there is no will, the probate court will appoint an “administrator.” This person does the same job as an executor. New Jersey law gives the surviving spouse or domestic partner priority.
- An non-NJ resident executor/administrator must post a bond ², unless the will states that it’s not necessary.
If nobody contests the validity of the will (“will caveat”), the surrogate’s court will issue a “Letters Testamentary” (if the executor was named in the will) or “Letters of Administration” (if the court appoints an administrator). With this, the executor/administrator has the authority to:
- collect and inventory the deceased person’s assets, and keep them safe;
- have the assets professionally appraised, if necessary (for example, real estate);
- pay valid debts and taxes, and
- distribute the remaining property as the will (or if there’s no will, state law) directs.
The executor/administrator must mail notice of the proceeding to all heirs and beneficiaries named in the will within 60 days after a will is admitted to probate.
An executor/administrator is entitled to a commission for the work of settling the estate, as follows:
- 6% of income received by the estate, plus
- 5% of the value of the gross estate up to $200,000.00, 3.5% $200,000 to $1 million, and 2% on amounts over $1 million.
¹ Self-proving will: affidavit attached to will that confirms the will’s validity. It is not necessary, but it will speed up the probate process.
² A bond is a kind of insurance policy that protects the estate if the executor or administrator mis-manages or steals estate funds.
Handling Estate Assets
The executor/administrator opens a bank account ³ for the estate and consolidates existing cash accounts in the estate account. The executor deposits amounts that come into the estate, and uses the funds to pay estate expenses.
The executor/administrator has authority over any assets that go through probate. Probate assets can include real estate, bank and brokerage accounts, and personal belongings.
The executor/administrator must keep careful records of how estate assets are handled and distributed and may need to submit receipts, bills and bank statements to the court. If all the beneficiaries approve the accounting kept, a formal approval from the court isn’t necessary.
³ To open an Estate account, you will need to bring a certified copy of the Death Certificate, Letters Testamentary or Letters of Administration, and an EIN issuance letter (an EIN can be obtained at www.IRS.gov).
Settling Debts and Taxes
It’s the executor’s duty to pay valid debts and expenses of the estate. The executor can ask the court for an Order Limiting Creditors, giving creditors six months to make any claims.
If there’s not enough money in the estate to pay all debts, the executor/administrator must prioritize claims according to state law. The family is paid first while the surviving spouse and children under 18 are entitled to a year’s support. After that come funeral expenses, costs of probate, expenses of the last illness, and taxes, in that order.
The executor/administrator must file final New Jersey and federal income tax returns for the deceased person. These returns are generally due by April 15 of the year following the year of death. Income tax returns may also be required for the estate itself, if it receives income.
A federal estate tax return will be required only if the taxable estate is more than $5.43 million, for deaths in 2015. New Jersey estate tax, however, may affect much smaller estates, that are worth more than $675,000.
New Jersey also imposes an inheritance tax. Unlike estate tax, inheritance tax rates are not based on the amount of the entire estate, but on who inherits. The heirs are separated into beneficiary classes, as outlined below:
New Jersey law puts inheritors into different groups, based on their family relationship to the deceased person.
Class A beneficiaries are exempt from the inheritance tax. They includes the deceased person’s:
- spouse, domestic partner, or civil union partner
- parent or grandparent
- child (biological, adopted, or mutually acknowledged)
- stepchild (but not step-grandchild or great-step-grandchild)
- grandchild or other lineal descendant of a child
Class B was deleted when New Jersey law changed.
Class C includes the deceased person’s:
- brother or sister
- spouse or civil union partner of the deceased person’s child
- surviving spouse or civil union partner of the deceased person’s child
The first $25,000 of property inherited by someone in Class C is not taxed. On amounts exceeding $25,000, the tax rates are:
- $25,001 – $1,100,000: 11%
- $1,100,001 – $1,400,000: 13%
- $1,400,001 – $1,700,000: 14%
- Over $1,700,000: 16%
Class D includes everyone else. There is no special exemption amount, and the applicable tax rates are:
- First $700,000: 15%
- Over $700,000: 16%
Class E includes the State of New Jersey or any of its political subdivisions for public or charitable purposes, an educational institution, church, hospital, orphan asylum, public library, and some other nonprofit agencies. These beneficiaries are exempt from inheritance tax.
Distributing Property and Closing the Estate
After taxes and expenses are paid, the executor/administrator can distribute and/or sell the assets. They must also check, before distributing assets, to be sure that an inheritor does not owe back child support. This is called a Child Support Judgment search.
The executor/administrator follows the instructions in the will, or if there is no will, follows state law to determine who inherits. New Jersey law provides that the deceased person’s closest relatives inherit his or her assets. When the executor or administrator has paid all debts, filed the required tax returns, and distributed all the estate assets, they will be released from performing those duties by the court.
Estate Bank Accounts
The executor/administrator will need to open a bank account in the Estate’s name, in order to fulfill the duties outlined earlier. While not all banks have the same procedures, there are general outlines for what the executor/administrator will need to establish an Estate account.
- Letters Testamentary or Letters of Administration;
- Copy of will, if there is one;
- Certified copy of Death Certificate;
- Employer Identification Number (EIN) issuance letter (can be obtained at www.IRS.gov);
- Personal identification (some financial institutions might require two forms if ID).
The account should remain open until all debts, and taxes, are paid; the funds can then be distributed to any heirs or beneficiaries, as deemed fit by the executor/administrator.
It is important to keep in mind that an Estate bank account cannot be re-opened, once it has been closed. Oftentimes estate executors/administrators make the mistake of closing the Estate account “early”. While there is no stipulated timeline for how long the account should remain open, it is always a good idea to maintain the account for a minimum of 6-9 months; as referenced earlier, creditors have 6 months to come forward with any claims if an Order Limiting Creditors is obtained from the court. The more complex the Estate – due to multiple beneficiaries, bank accounts to be consolidated, real estate to be sold, etc. – the longer the Estate account needs to remain open.
In order to be certain that the correct tax forms are completed for the Estate, the executor/administrator should consult with a tax professional, such as a CPA.
Estate Tax Requirement & Payment
New Jersey collects both an inheritance tax and its own estate tax, separate from the federal estate tax. Under current law, estates with a total value of more than $675,000 are subject to the New Jersey estate tax.
There is also an inheritance tax in New Jersey. It’s different from the estate tax because it applies to estates of any size, but the tax rate is based on how closely each inheritor is related to the deceased person (see Beneficiary Classes above).
When an Estate Tax Return Is Required
If the deceased was a New Jersey resident, and leaves assets with a gross value of more than $675,000, the executor of the estate will have to file a New Jersey estate tax return. NJ estate tax does not apply to nonresidents.
The value of the gross estate is calculated by adding up all of the assets owned at death, including:
- Real estate in New Jersey
- Bank accounts (checking, savings, CD’s, etc.)
- Investment accounts and securities
- Vehicles and other items of personal property
- Proceeds from insurance policies on your life, unless you didn’t own the policy
- Retirement account funds
- Small business interests (sole proprietorship, limited liability company, or small corporation)
Property you leave to your spouse or civil union partner is exempt from state estate tax, no matter what the amount. For more information on the estate tax, see the New Jersey Treasury Department’s Division of Taxation.
State Estate Taxes
Even if your estate isn’t big enough to owe federal estate tax, the state may still take a bite out of it. Many states collect either their own estate or inheritance taxes. If you live in one of those states, there’s not much you can do to avoid paying those taxes, save moving to another state.
New Jersey Inheritance Tax
Filing the Inheritance Tax Return
It’s the job of the executor or administrator of the estate to file an inheritance tax return. Only one return needs to be filed, even if several people owe inheritance tax.
New Jersey inheritance tax returns, instructions, and current tax rates are available on the state of New Jersey Division of Taxation website.
The tax return, along with copies of the will – if there is one – and the deceased person’s last federal income tax return, is filed with the New Jersey Division of Taxation. The return must be filed, and any tax paid, eight months from the date of death. Interest accrues on any unpaid tax however the state can grant an extension of up to four months to file the return, but the tax must still be paid by the original deadline.
Inheritance Tax Waivers
Certain property can’t be transferred out of the estate until the inheritance tax is paid and the state issues a tax waiver. If no tax is due, someone who is a Class A beneficiary can file a “Request for Real Property Tax Waiver.” If the waiver is granted, an inheritance tax return doesn’t have to be filed.
If someone names you as a beneficiary in a New Jersey will, plan on waiting a minimum of nine months before you receive the bequest. The executor of the estate must complete several procedures before the estate can settle. If the executor is efficient and manages their time well, they might close the estate immediately after set timeframes. However, most settlements occur about a year after the executor enters the will for probate, but could be longer if the estate is larger.
One of an executor’s first duties in New Jersey is to locate the decedent’s assets, and securing them in a safe place. Items of significant value, such as real estate or collectibles, usually require appraisals. The executor must ascertain their value, both for estate tax purposes and to distribute the appropriate amounts to other inheritors. Appraisals for real estate can take as long as six weeks to complete.
The decedent’s creditors have six months to make claims against the estate for payment. Most executors apply to the court for an Order Limiting Creditors, which obligates the creditors to submit claims for their money within six months. The executor sends this order to creditors she knows about, and the court will also publish notice of the deadline in a local newspaper. They can approve and pay these debts as soon as the creditors make their claims, but is not obligated to do so, and has three more months after the six-month deadline expires to decide if the claims are valid. If any are denied, the creditor can file a petition with the court to overrule the decision, and the court will schedule a hearing, which may take several more months.
4 Ways Koda Homes can Help During Probate
It is not uncommon to sell a house out of probate in order to pay taxes, bills or just to get the cash. While everyone would like to own another house to live in or rent it out for the extra income, it is not always possible. Here are a few reasons why it might be better to sell the house to Koda Homes and get quick cash:
- The house is far away. This is a problem because you’ll need to make frequent trips in order to maintain the house and make sure it’s secure.
- Property Taxes. Once you own the house, you will be on the hook for property taxes
- Upkeep. You will be required to keep the house in decent condition. If you neglect to cut the grass, trim the shrubs or remove snow from the driveway and walkways you could be fined by the town or municipality.
- Lawsuits. If someone is injured on your property because they slipped on some ice, you will be held liable and could get sued.
Assuming you don’t want the headaches of being a landlord, or hiring a management company, your best bet might be to sell the place and get a few hundred thousand dollars in your pocket. There are a couple ways you could sell, but the traditional ways can be costly and cut into your profits. One of the quickest and most painless ways to sell an inherited or probated house is to Koda Homes and here are 3 reasons why:
- Sell quickly! Often times Koda Homes can close in as little as two weeks compared to, on average, 6+ months if listed with a Realtor.
- Get Cash! The reason Koda Homes can close quickly is because our offer to you will be a full cash offer with no financing contingencies. You will not have to worry about banks holding up the transaction because of financing or inspection issues.
- Koda Homes will buy your house AS IT SITS. This means no clean up for you, no upgrading or getting the property in a livable condition. Retail buyers are very picky in today’s market and will demand all the amenities. We will buy your home 100% AS-IS, make all repairs necessary and take care of all City permits, inspections and requirement to sell your home.
- Pay NO Realtor Fees or Commissions! With a traditional sale of a house, there will be, on average a 6% commission paid out to the Realtors as well as closing fees. Koda Homes (even though we are licensed New Jersey Real Estate Sales Agents) will not charge a commission and will also pay all the closing costs if need be.
When selling to Koda Homes, you will have to be honest with yourself about the market value of the home. Koda Homes will give you a fair offer. This offer will be based on the recently sold homes in your area, minus the repairs that need to be done to the house in order to get the condition back on par with others in the neighborhood.
It’s never a bad idea to talk with Koda Homes prior to listing your property to see what we can offer you. You can always say ‘No’. If you list with an Realtor first, you will be tied in for 180 days or more, all the while making mortgage payments, paying taxes and utilities, maintaining the house and making the necessary improvements without even knowing if the house will sell.
Call Koda Homes today for a complimentary review of your situation. If there is a synergy between us Koda will submit an offer to you or the executor within 48 hours of viewing your home.