Estate Sale

CONVEYING THE RESIDENCE OF A FAMILY MEMBER WHO HAS PASSED AWAY: THE “ESTATE SALE”

When a loved one passes, there are many duties and responsibilities that naturally
fall to the surviving family members. As if the grieving process isn’t hard enough, now
family members also need to handle the affairs of the recently departed’s possessions,
known as their “Estate”. One of the major responsibilities for the family is to determine
what to do with the primary residence of the decedent, as the residence usually makes
up a significant portion of the Estate. The terms of the will, assuming the decedent
had executed a will, typically spell out the manner of conveyance and the ultimate
beneficiaries of the property.

As a real estate attorney, I have represented many families on an Estate sale. It
can be a delicate process, as often times there are multiple beneficiaries with an interest
in the disposition of the residence. While there is typically only one person in charge of
carrying out the terms of the will, referred to as an Executor, several people might be in
line to split the proceeds of an Estate sale. This can cause significant problems, as people
with differing opinions and differing attachments to the residence are involved in the sale
process.

One of the most common questions that come up during an Estate sale is: What
are the tax consequences of the Estate sale? Most beneficiaries are quite curious, and for
good reason, as to how their proceeds from an Estate sale will be altered by taxes. In the
next few paragraphs I will highlight the basics of the tax breakdown of selling an Estate.
It is best to keep in mind that every sale is different and tax consequences in each case
can vary. There are unfortunately no hard and fast rules that will encompass every Estate
transaction, but the following information can be a useful guide.

On an Estate sale, the Executor of the will, rather than the homeowner, is the
individual who will be signing all documentation on the sale…listing agreements,
contract for sale, closing documents, tax forms, etc. I find it helpful to let all the
beneficiaries (spouse, children, parents of the deceased, siblings of the deceased) know
that I will be taking direction from the Executor only. If the decedent had five children
there is no way I can take direction from five different people and accommodate their
individual wishes on every aspect of the sale. Taking direction from the Executor alone
allows the process to become much more efficient and helps maintain my sanity.

There are two taxes that come into play when an Estate is conveyed: the
inheritance tax and the estate tax.

If the beneficiary of the estate is a “Class A” beneficiary, meaning the father,
mother, grandparents, wife, husband, civil union partner (after 2/19/07), child, children
or grandchildren of the decedent, they are exempt from the State inheritance tax. For
all other beneficiaries, the tax ranges from 11% to 16% of the value of the transferred
property.

For the estate tax, there can be both a State and a Federal component to the tax. If
the value of the total estate of the decedent (not just the home, but all assets combined)
is less than $675,000.00, no New Jersey State estate tax, nor Federal estate tax, is due. If
the total estate is valued at over $675,000.00, but less than $2,000,000.00, a New Jersey
estate tax only is due. It is once the value of the entire estate exceeds $2,000,000.00 that a
Federal estate tax kicks in as well. Very important to note that the surviving spouse of the
decedent is exempt from the estate tax, regardless of the gross value of the estate.

Just because no tax may be due does not relieve the Executor of the estate
from obligation to New Jersey concerning the estate tax. The NJ Division of Taxation
must give written consent before the estate residence can be transferred. This consent
is known as the “tax waiver”. A tax waiver is not required only when the beneficiary
is a wife, husband or civil union partner who owned the property as a “tenant by the
entirety”. A form, called the L-9 form, must be filled out and submitted to Trenton by the
Executor. This form can be found online at the State’s tax department’s website, at http:/
/www.state.nj.us/treasury/taxation/index.html. Once the State receives this form they
will issue the tax waiver. Again, if the value of the total estate exceeds $675,000.00, this
waiver cannot be used. This waiver is very important to have, so make sure it is applied
for as early as possible, as it can take several months to come back from the State. Also,
many title companies will insist on holding a portion of the proceeds in escrow at closing
if the waiver has not been received by the closing date. No Seller wants their money tied
up after closing, so the sooner you get the wavier the better.

Finally, the Buyer of the home’s title company may require additional
documentation from the Estate in order to insure title. This documentation may consist of
the death certificate, probate court documentation, a copy of the deed, etc., so make sure
the Executor has the estate/decedent’s paperwork handy.

As one can see, this can be a very confusing process with all the calculations and
tax ramifications. If you put the right professionals in place however, the sad event of
selling a loved one’s property can at least go smoothly and not add further stress to those
left to carry on.