By Fredrick P. Niemann, Esq. of Hanlon Niemann, a Freehold, NJ Probate Estate Administration Attorney and Law Firm
In our last post about finalizing an estate, I discussed several key obligations that New Jersey estate and probate laws placed upon an executor or administrator. Let’s continue the discussion.
One of the benefits of making partial distributions to beneficiaries is the shift of income from the estate to the beneficiaries. In making a partial distribution, the Executor or Administrator of the Estate can send a Form K-1 to the beneficiaries who, in turn, can claim estate income on their own individual Form 1040. This option is almost always preferable to having the estate income taxed by the estate at significantly higher estate tax rates. In determining whether or not such partial distribution should be made, the Executor or Administrator should weigh the following factors: (a) the needs of the beneficiaries, (b) potential deterioration or loss of value of estate property, and (c) income tax ramifications from shifting estate income. If the Executor or Administrator decides to make a partial distribution, he/she should treat all beneficiaries impartially by making pro-rata distribution of their shares under the intestacy statute.
In general, there is no set time by which an Executor or Administrator must close an estate and distribute the estate assets. It must be done pursuant to the reasonable person standard. If an estate is taxable, the Executor or Administrator should wait until the federal closing letter and/or state closing letter are received. In the event an estate is subject to both federal and state tax, the Transfer Inheritance Tax Branch will not release a state closing letter until the federal closing letter is received by its office.
After the aforementioned steps are taken, the Executor or Administrator shall ensure that all final estate expenses are paid including Executor’s commissions and professional fees.
Occasionally, an aggregate estate is not expected to cover the decedent’s debts, administration expenses, taxes and bequests. In that situation, the shares of estate beneficiaries must be abated. Pursuant to N.J.3B:23-12, shares should abate in the following order: (1) property passing by intestacy, (2) residuary devises, (3) general devises and (4) specific devises. N.J.3B:23-12 further states that abatement within each classification is in proportion to the amount of property each of the beneficiaries would have received if full distribution of the property had been made in accordance with the terms of the Will.
To discuss your NJ probate or estate administration matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at firstname.lastname@example.org/. Please ask us about our video conferencing consultations if you are unable to come to our office.