- Overview of the Legal Issue(s) Involving IRA’s and the New Jersey Inheritance Tax
- A distant family member dies and leaves a sizeable IRA to her closest relatives. None of these family members are exempt beneficiaries under the New Jersey Inheritance Tax laws.
- New Jersey makes the Executor of the estate personally liable for the payment of inheritance taxes due to the State.
- As a result, the Estate does not want a delay in the payment of this tax by an IRA beneficiary to prejudice the timely payout of Estate assets to exempt beneficiaries.
What Can Be Done to Ensure That Each Beneficiary Pays Their Share of New Jersey Inheritance Tax Based on the Inheritance They Receive?
Keep in mind that the issues described above can happen with any asset that passes outside the Will to a beneficiary. It is not always easy for an executor to recover inheritance taxes, especially if the beneficiary lives outside of New Jersey.
An Executor can recover their legal fees and costs in a legal proceeding to recover inheritance taxes due to the State. Another option is to put the institution holding non-probate assets on notice that the tax is due and they should consider withholding a portion of the funds.
If you own retirement benefits and still l want to name Non-Class A beneficiaries for retirement benefits, including an IRA or 401(K), because of creditor protection reasons (among other reasons) including income tax benefits, then if consistent with your estate plan, you can have death taxes and inheritance taxes payable from your residuary estate, but you must be very careful here. It can greatly disadvantage your other beneficiaries.
To discuss your NJ Estate and Probate Administration matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com. Please ask us about our video conferencing consultations if you are unable to come to our office.
By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County NJ Estate and Probate Administration Attorney