The Transfer of Assets to Beneficiaries

The Transfer of Assets to Beneficiaries Including Real and Personal Property and Satisfying Tax Lien Waivers

Many folks want to leave a financial legacy to their spouse, children, grandchildren and others. The probate process allows the transfer of a lifetime of savings and investments to beneficiaries which takes place upon the death of the owner.

Ownership and Title Issues Affecting a Decedents’ Estate: A Primer for Executors and Administrators Subject to Probate in New Jersey

Often, an executor or administrator questions how he or she should transfer real estate and other estate assets to beneficiaries. Does the executor assume legal title and ownership to the property as a fiduciary pending its transfer to beneficiaries or does ownership automatically vest in the named beneficiaries upon the death of the owner? These are good questions.

New Jersey laws provide that “Upon the death of a decedent, his or her real and personal property devolves (“devolves” means “passes to” as-in the transfer of legal ownership) to the person(s) named under his/her will…or in the absence of a will or trust, the testamentary disposition (“testamentary disposition” means dying with a will or trust), to his or her heirs…” Please note that I hate big legal words so I’ve given you the plain language translation of the legal term(s) used.

What this means to you as the executor or administrator is that “In the absence of contrary language in the Last Will or Trust…every fiduciary (if you’re the named executor or administrator, you’re a fiduciary) shall, in the exercise of good faith and reasonable discretion, have the power…(1) to acquire or dispose of an asset, including real or personal property…at public or private sale…”

Therefore, until you complete the probate process, you as a fiduciary have legal authority and power over estate property which is greater than that of the named heirs. You can exercise your statutory power to deal with estate property without prior notice to beneficiaries, or an order of a court; or the directives of a beneficiary.

Transferring Assets to Beneficiaries: It’s Tricky So Be Careful!

What Happened to Mom’s Diamond Earrings and Other Personal Property?

I have drafted thousands of Last Wills for clients over the years. I have represented executors and administrators in the estates of individuals who have passed on. Based upon my experience, I can say with certainty that one common issue that presents itself has to do with “personal property”.

Why is it that personal property becomes the source of so many problems since often this property has little to no monetary value?  I can’t answer that question except to tell you that personal property often causes the biggest messes within an estate!

Personal property is typically comprised of items such as jewelry, furniture, paintings, and collections (stamp collections, baseball card collections).

Personal property doesn’t have its own “legal title”.  To clarify:  a car has a title, so it is clear who owns the car; a house has a deed, so it is clear who owns the house. But personal property has no title. If someone runs off with the decedent’s diamond earrings, it is difficult to prove this because there is no title to the jewelry. It is also difficult to value the jewelry with any certainty, unless you sell the jewelry, or find it and have it appraised.

Despite what some people may believe, personal property (in most cases) has little to no monetary value. Old jewelry typically is not worth that much. Furniture is almost always of little to no value. Collectibles typically have far less value than the collector (no deceased) believed it had.

Yet, in administering an estate and watching and listening to cases in the NJ Probate Courts, I have seen personal property be the most contested issue by all sides. I have seen beneficiaries claim that the executor did not properly distribute the personal property, or wrongly disposed of it without consent. Beneficiaries will claim that items of personal property (a painting, a piece of jewelry, etc.) are of unique sentimental value. Beneficiaries will also claim that the executor sold items of personal property that they wanted, or that the decedent promised them.

I have seen executors and beneficiaries claim that another family member stole items of personal property from the decedent yet cannot document that the property existed at time of death.

I have seen beneficiaries give an executor a difficult time because the executor wants the beneficiaries to take the personal property from the decedent’s house, and the beneficiary doesn’t want to be bothered retrieving the property (but will assuredly complain if the executor disposes of the property).

It’s irrational. Basically, the goal seems to be “I will take whatever position regarding personal property that allows me to be the most difficult to the unliked executor and/or the other beneficiaries.

As I mentioned earlier, since personal property has no title and its monetary value is debatable, the executor or beneficiary who is being accused of mishandling or misappropriating the item of person property must try to prove that the item had little or no value, while the disgruntled accuser will claim that the personal property item had irreplaceable sentimental value: “That was mom’s dress. I wanted that dress to remind me of mom.”

It’s a no-win situation for all concerned.

Courts must often address fights over personal property in probate cases. They do not have a lot of patience over these skirmishes. If the court held a trial every time someone claims theft, coercion or mishandling of mom’s earrings, the court system would be even more dysfunctional than it often is.

There is no absolute solution for these “war of the roses” because in most cases, the accuser is simply making an accusation in order to cause problems; that’s why I add language in Last Wills that orders personal property to be sold if the beneficiaries cannot agree within 120 days of the decedent’s death.

Still many clients tell me, “My children won’t fight, they get along.” But you never know, so you should prepare for the worst and hope for the best.

Can the Executor or Administrator of an Estate Purchase the Assets of the Estate Without the Consent of the Beneficiaries?

The answer to this question is yes, but with conditions.  New Jersey probate laws require that:

Any sale to the fiduciary, his spouse, agent or attorney, or any corporation or trust in which he or she has a substantial beneficial interest, or any transaction which is affected by a substantial conflict of interest on the part of the fiduciary, is voidable by any person interested in the estate except for a beneficiary who has consented after fair disclosure, unless:

  1. The will or a contract entered into by the decedent expressly authorizes the transaction;  or
  2. The transaction is approved by the court after notice to all interested persons.

In one case that I’m aware of, the wife was declared incompetent, and the husband was appointed as guardian. They owned a house and other property jointly, but the husband obtained a loan on commercial property titled solely in his name, which was secured by the marital home that was jointly owned with his spouse. The husband died and the plaintiffs, his children, were appointed co-guardians over their mother.  The defendant-bank sought to collect its defaulted loan against the marital home as the first mortgage holder on the property. The plaintiff-children asserted that the mortgage was invalid as the husband had failed to obtain court permission before disposing of the property. The court held that the ward’s property was not vigorously protected and that the husband had acted improperly and under a conflict of interest when he purchased the commercial property titled solely in his name. The court held that New Jersey laws were applicable because, although the bank knew of the guardianship, it had allowed the transaction anyway, which showed less than good faith on its part. This case supports the reason for my caution to representatives when dealing with estate property.

Handling Required Tax Lien Waivers in New Jersey: Don’t Forget!

When Do You Need an Inheritance Tax and/or Estate Death Tax Waiver from the State of New Jersey?

New Jersey taxes everything.  Even upon death the state has its hands in your pocket by virtue of its laws which require your personal representative (like an executor, administrator) or trustee to obtain a tax lien waiver before transferring estate assets to beneficiaries.  In fact, N.J.S.A. 54:35-5 provides that the New Jersey transfer inheritance tax is a lien on all property owned by a decedent as of the date of his or her death for a period of fifteen (15) years thereafter.  Until the death tax was absolved in 2018, the New Jersey estate tax was a lien on all property of the decedent as of the date of his/her death and no property owned by the decedent at the time of death could be transferred without it being exempt or without the written consent of the state.

As previously discussed, New Jersey has an Inheritance tax. This tax is not based on the value of the estate at the time of death but rather it is based primarily upon the blood/legal relationship of the beneficiary to the deceased. Individuals with a very close blood relationship pay no inheritance tax, while those with a more distant relationship to the deceased are subject to inheritance tax.

The beneficiary relationship classes are: (1) Class A (2) Class C (3) Class D, and (4) Class E. All but Class A and Class E beneficiaries are subject to inheritance tax at rates from 11%-16% with very small or no exemptions. An inheritance tax return must be filed within 8 months of death and the tax is applicable even to non-NJ residents if they own real or tangible personal property in New Jersey.

More On Tax Waivers

Tax waivers are required to transfer the following assets:  New Jersey real property (like a residence); funds held in a New Jersey bank; brokerage accounts or mutual funds that do business in New Jersey; stocks or bonds of a New Jersey corporation or institution.

There are however certain exceptions to the requirement of obtaining a tax lien waiver and an executor or trustee may be able to transfer a portion of the decedent’s estate without risk of a tax lien provided certain conditions are met.  These conditions provide that 1) banks may release (without a tax waiver) an amount up to 50% of the entire amount of funds on hand to any of the following representatives:

  1. An executor;
  2. An administrator;
  3. Legal representative of the decedent;
  4. The surviving joint tenant;
  5. Estate of a minor person where title to the funds are held in the name of a custodian for the minor.

Any all checks drawn on an account owned by a decedent individually, jointly or otherwise when the checks were written prior to death and presented for payment within 10 days following the decedent’s death can be paid notwithstanding the 50% limitation referenced above.  Of course, New Jersey being New Jersey allows for a representative to use funds on account to make full or partial payment of any New Jersey inheritance or estate tax payable to the state of New Jersey without first obtaining a tax waiver.  The final exception to obtaining a waiver has to do with withdrawing funds from an account where the decedent has pledged his or her passbook or savings account as collateral for a loan.

Exemption From Tax Waivers

There are some situations in which the personal representative of an estate or trust is exempt from obtaining a tax waiver altogether.  In fact, some of these exceptions are the principal motivation for recommending estate planning by use of Revocable Living Trusts rather than a Last Will and Testament.  Consider the following exceptions to the tax waiver requirement;

  • For non-resident decedents, tax waivers are not required if the estate involves a non-resident.  Inheritance tax waivers, however, are required only for N.J. residents and domiciles for real property located in New Jersey.
  • Real property which is held by a husband or wife as tenants by the entirety can be transferred without a tax waiver in the estate of the first spouse to pass on.
  • Estate’s held in a bona fide trust.  Revocable living trusts hold title to assets in the name of the trustee.  Under New Jersey law and administrative rules, a trust is not required to obtain a waiver to transfer legal ownership of trust assets following the death of the trust maker.  This exemption makes the use of a revocable trust a very powerful alternative to a last will as it allows the trustee to fully deal with the trust property in a manner which serves the principal interests of the beneficiaries in the timing of the sale of trust assets or distributions to trustees.

Further, transfers of savings accounts into an estate checking account or other savings accounts within the same bank do not require the issuance of a tax waiver.  Partnership interests do not require the issuance of a tax waiver for the transfer of real estate or personal property (tangible or intangible) owned by the partnership in which the decedent had an interest.

Finally, a tax waiver is not required for the transfer of certain personal property in the nature of wages, salaries, vacation and sick leave pay, payments under a pension profit sharing or bonus plan, any automobile, mortgage, account receivable or household goods, or funds held in the name of a funeral director or trust for the decedent to pay funeral and burial expenses.

New Jersey Tax Waiver Guidelines
Applicable
to Joint Bank Accounts

If money belonging to the deceased at death is in a “joint” bank account with his/her spouse, civil union partner, parent, grandparent, child, step-child, legally adopted child or their issue, the bank may release the funds to the surviving owner upon execution of required documentation as mandated by the state (see below for further information). If the beneficiary is other than as above listed further action must be undertaken by the joint account holder or Executor, namely a tax waiver.

Tax Waiver Guidelines Applicable to Personal
Accounts Titled in the Name of the Deceased

If the money belonging to the deceased at death is in his or her name alone and by the terms of the Last Will or by law (if there is no will or trust) the $$ goes to a spouse, civil union partner, parent, grandparent, child, step-child, legally adopted child or their issue (these are Class A beneficiaries), the bank will release the funds to the Executor or Administrator upon receipt of a surrogate’s certificate and affidavits in the form required by the State of New Jersey generally called an L-8 form.

If the money belonging to the deceased at death is in a bank account in the name of the deceased alone and under his or her Last Will it goes to someone other than a spouse, civil union or partner; parent, grandparent or child (these are Class C & D beneficiaries) the bank will freeze the entire account but will release one-half of the funds upon receipt of a Certificate of Executorship or Administration or Affidavit of Surviving Spouse or Next of Kin from the individual to whom the Surrogate has issued such Certificates/Affidavits. The remainder stays frozen pending receipt of a New Jersey Tax Waiver.

Tax Waiver Guidelines Applicable to Real Estate

If real estate is owned in the deceased’s name alone or with someone other than a surviving spouse or a domestic partner, an application must be made to the Division of NJ Taxation to release the property from New Jersey’s estate tax lien. Obtaining a tax waiver often requires submission of significant financial disclosures by the estate representative to the State of New Jersey. It also takes many months to get a waiver from the state.

Fredrick P. Niemann Esq.

In order to protect and ensure that all functions of the executor/administrator are performed properly, it is wise to consult with Fredrick P. Niemann, Esq. who is an estate administration and probate attorney in New Jersey. He can be reached toll-free at (855) 376-5291 or by email at fniemann@hnlawfirm.com. Fred has working relationships with many New Jersey County Surrogate offices.

 

 

 

Written by New Jersey Probate and Estate Administration Attorney, Fredrick P. Niemann, Esq.

Probate lawyers serving these New Jersey Counties:

Monmouth County, Ocean County, Essex County, Cape May County, Camden County, Mercer County, Middlesex County, Bergen County, Morris County, Burlington County, Union County, Somerset County, Hudson County, Passaic County