How Can the Begley Law Group Help Me With Estate Administration in New Jersey? – Begley Report

By: Thomas D. Begley, Jr., Esquire, CELA and Ethan J. Ordog, Esquire

The administration of an estate by an Executor or an Administrator, often called a Personal Representative, is a complex process that can be difficult and time consuming.  If the Personal Representative makes an error, he or she can be held personally liable and have to pay for the error out of his or her own personal funds.  This report contains some of the ways that Begley Law Group (BLG) can assist in the prompt and efficient administration of the estate and in reducing the personal liability of the Personal Representative.

SURROGATE’S PROCEEDINGS

♦ Surrogate’s Intake Sheet.  After a brief telephone conference with the Personal Representative, BLG is able to complete the Surrogate’s intake sheet in advance.  BLG then sends the intake sheet to the Surrogate who completes everything in advance of the Personal Representative appearing at the Surrogate’s office.  The Personal Representative then goes to the Surrogate’s office and the process takes about ten minutes.  All of the information is correct and accurate, and the Personal Representative is able to move forward seamlessly.

♦ What Does the Personal Representative Need to Take to the Surrogate’s Office?  When appearing at the Surrogate’s office, the Personal Representative should take the following:

• Original Will (a copy is not acceptable)
• Original death certificate (a copy is not acceptable)
• Blank check (approximately $200)
• Driver’s license

♦ Death of Primary Personal Representative.  If the Primary Personal Representative has died and is unable to serve, and a Successor Personal Representative, named in the Will, is seeking appointment, then a certain process must be followed.  If an estate for the deceased Primary Personal Representative was opened in the county where the Successor Personal Representative is probating the Decedent’s Will, there is no problem.  Otherwise, the Successor Personal Representative must present a death certificate or an obituary for the Primary Personal Representative in the county where the Decedent’s Will is being probated.  BLG can assist in simplifying this process.

♦ Letters Testamentary.  When leaving the Surrogate’s office, the Personal Representative will receive Letters Testamentary, which are attached to a photocopy of the Will.  The Surrogate keeps the original Will.

♦ Short Certificates.  A short certificate evidencing the client’s appointment as Personal Representative will be issued by the Surrogate.  Each short certificate will expire after 60 days.  One short certificate must be provided to each financial institution and to agencies, such as the New Jersey Motor Vehicle Commission, to transfer automobiles, etc.  These are used to prove to third parties that the Personal Representative has authority to transfer assets.  BLG can assist in determining the number of short certificates required.

♦ Notice of Probate.  A Notice of Probate must be filed within 60 days of the probate of the Will.  Notice of Probate must be sent to all beneficiaries and next-of-kin (whether or not named as beneficiaries in the Will).  Anyone wishing to challenge a Will has three months if they reside in-state, or four months if they reside out-of-state.  The clock on this time period does not begin to run until the Notice of Probate has been served.  This is an important step and must not be overlooked.  BLG can assist in preparing, serving and filing the Notice of Probate.

INITIAL ADMINISTRATION

♦ Open Estate Account.  An estate account should be opened to receive estate assets that are liquidated or transferred.  The account can be opened with a bank or a brokerage firm.  A Tax Identification Number (TIN) will be required to open the account.  BLG will obtain this number for you from the Internal Revenue Service.

♦ Transfer or Liquidate Assets.  Before a Personal Representative transfers assets to the estate, he or she should obtain date of death values, appraisals of real estate, and Blue Book values of motor vehicles to be able to provide an accurate accounting.

♦ Disability.  If any beneficiary of the estate is disabled, has a Guardian been appointed or is there a Power of Attorney for that beneficiary?  The Personal Representative would be personally liable if the beneficiary loses benefits.  If not, BLG can assist in providing the appropriate solution.

♦ Real Estate. 

• Estate Questionnaire. Title companies will require that the estate complete an estate questionnaire.  BLG will assist in completing this form.
• The estate must deliver a deed to the buyer. BLG will prepare the deed for the Personal Representative.
• Review Agreement of Sale. BLG will review the agreement of sale for the Personal Representative, if requested.

♦ Inventory.  The Personal Representative should identify each of the estate assets and prepare an inventory.  BLG can assist in preparing this inventory.

♦ Ancillary Probate.  If real estate is located in a state other than the one in which the Decedent had his or her primary residence, then ancillary probate will be required in the other state or states in which real estate is owned.  If the other real estate is owned by a Living Trust, the ancillary probate can be avoided.  Tax returns may be required by the other state.  The other state may also have other requirements that must be satisfied.  BLG can assist in obtaining counsel in other states, if required.

DEBTS

♦ Credit Reports.  BLG can assist in obtaining credit reports to determine if there are any debts or liens.  If there are outstanding debts or liens and the Personal Representative makes distributions without satisfying those debts or liens, the Personal Representative will be personally liable.

♦ Validation of Debts.  If debts or liens are known to exist, a determination should be made as to whether they are valid.  If there are valid debts or liens, they must be satisfied.  Failure to pay valid debts results in personal liability for the Personal Representative.  BLG can assist in validating outstanding debts.

♦ Debt Reduction.  Debts, such as credit cards, can often be reduced.  BLG can assist the Personal Representative in reducing credit card debt and other past debts and liens.

♦ Insolvent Estates.  An insolvent estate is an estate where the liabilities of the Decedent exceed the value of the assets.  There is a priority of creditors that must be established by the court to determine which creditors should be paid and how much.  The Personal Representative should not pay any debts prior to receiving the court order.  Payment of such debts without the court order makes the Personal Representative personally liable to creditors who should have been paid.  BLG can assist in obtaining this court order.

♦ Bankruptcy.  Careful inquiry must be made as to whether or not there are any bankruptcy proceedings involving the Decedent.  Failure to do so and making an improper distribution may result in personal liability on the part of the Personal Representative or Trustee.

TAX

♦ Income Tax Returns.  Some people stop filing income tax returns as they grow older.  The Personal Representative must make a determination as to the last year that the Decedent filed an income tax return.  BLG can assist in dealing with the Internal Revenue Service (IRS) to make this determination.  BLG can also assist in filing past due returns, if necessary.  An income tax return also must be filed for the year of the Decedent’s death.  The Personal Representative is personally liable for failing to file and pay all taxes due.

♦ New Jersey Estate Tax.  Effective for individuals dying after January 1, 2018, the New Jersey estate tax exemption was repealed.

♦ New Jersey Inheritance Tax.  The New Jersey inheritance tax return has not been repealed.  The New Jersey inheritance tax applies to all heirs except spouses, parents, grandparents, children, grandchildren, and stepchildren.  The New Jersey inheritance tax does apply to stepgrandchildren.  For siblings, the first $25,000 per sibling is exempt, and then there is a tax of 11%.  For all others, there is no exemption, and the first $750,000 per beneficiary is taxed at 15%, and any excess is taxed at 16%.  Gifts made within three years of death are brought back for purposes of New Jersey inheritance tax.  BLG can assist in preparing and filing the New Jersey Inheritance Tax Return where required.

A non-resident of New Jersey must file a Form L-9 as discussed below, and a New Jersey Inheritance Tax Return, if required.

♦ Income in Respect of a Decedent (IRD).  If an estate includes any of the following, then special income tax rules apply:

• Savings bonds
• Retirement accounts
• Annuities

BLG can assist in advising with respect to these income tax issues.

♦  Form 1040.  A Decedent must file a 1040 for the year of death and any years prior to death for which returns were required to be filed.

♦  Form 1041.  The estate and/or trust must file an Estate or Trust Income Tax Return (Form 1041) for each year that the estate or trust earned income in excess of $600.

REAL ESTATE – FORM L-9

An L-9 is a form that must be filed in order to transfer real estate.  BLG can assist in filing this form.  It must be filed if the real estate is owned by:

• A deceased individual, or
• A deceased individual as tenants-in-common with another individual, or
• A deceased individual as joint tenant with anyone other than a spouse.

♦ Resident.  A resident must file a resident’s L-9.

♦ Non-Resident.  A non-resident must file an NRL-9.

♦ Sell Real Estate.  The L-9 or NRL-9 is required to sell real estate.  This applies whether the real estate is to be sold immediately or in the future.  For example, Dad dies owning real estate, which under his Will he leaves to his son, Bill.  The Personal Representative can transfer the real estate from Dad to Bill, but suppose immediately or in the future (i.e., five years later) Bill wants to sell the real estate.  The title company will make a search and if an L-9 is not filed, Bill will be unable to sell the real estate.

♦ Waiver.  Upon filing an L-9, the Division of Taxation issues a waiver, which must be filed in the county in which the real estate is located.  BLG can file the waiver on behalf of the client.

♦ Trust Under Will.  No L-9 is required, if the real estate continues to be held in a trust under the Will.

♦ Estate Tax.  No L-9 is required, if estate tax must be paid.

♦ Inheritance Tax.  No L-9 is required, if inheritance tax must be paid.

FORM L-8

An L-8 is a form that must be prepared by banks.  Upon death of the Decedent, the bank generally will freeze one-half of the account until an L-8 is filed.  The bank will then file it with the New Jersey Division of Taxation.  No L-8 is required if:

• There is no trust in the Will, or
• The estate is below the New Jersey estate tax exemption and federal estate tax exemption, or
• The estate is being left to a spouse, lineal ascendants, or lineal descendants.

DISTRIBUTIONS

♦ Child Support.  The Personal Representative must determine if there is any outstanding child support due from any of the beneficiaries of the estate.  A Charles Jones search may be required.  This determination must be made prior to distribution to the heir.  Let’s suppose Dad died leaving his son, Bill, $100,000.  Let’s suppose Bill has outstanding child support in the amount of $40,000.  The Personal Representative must pay the back child support prior to distributing Bill the $60,000 remaining.  Failure to do so makes the Personal Representative personally liable.  BLG can assist in making this determination.

♦ Accountings.  An accounting should be filed in every estate, unless the only beneficiary is:

• Spouse, or
• Personal Representative.

In all other situations, an accounting must be filed to relieve the Personal Representative of future liability.  BLG can assist in the preparation and distribution of the accounting.

♦ Release and Refunding Bond.  The Personal Representative should file with the Surrogate a Release and Refunding Bond signed by each beneficiary, unless the only beneficiary is the spouse, or the only beneficiary is the Personal Representative.  BLG can assist in preparing the Refunding Bond and in obtaining the necessary signatures.

♦ Commissions.  Executors, Administrators and Trustees are entitled to commissions.  Care must be taken to calculate these so that the Personal Representative and Trustee receive the full amount due.  BLG can assist in this calculation.  Commissions are income taxable and some Personal Representatives and Trustees elect to waive them.

♦ Retitling.  Assets can be retitled in two ways:

• Assets can be liquidated and distributions made to the beneficiaries in cash.
• In-Kind. If one or more beneficiaries want specific items, such as a home or investment account, these can be distributedto those beneficiaries in-kind without liquidating the assets.
• Distributions can be made to beneficiaries partly in-kind and partly in cash.

♦ Retirement Plan and Annuity Options.  There are a number of options for handling retirement plans and annuities.  These decisions often have important tax implications.  BLG can assist in discussing these options with the appropriate beneficiaries.

OTHER CONSIDERATIONS

♦ Trust Termination.  There are various types of trusts.  These include the following:

• Trust under the Will
• Living Trust
• Disclaimer Trust
• Credit Shelter Trust
• QTIP Trust
• Children’s Trust
• Income Only Trust
• Special Needs Trust

When the trust is terminated, the following steps must be taken by the Trustee:

• Form 1041. A Form 1041, which is an income tax return, must be filed for the trust by the Trustee on an annual basis.
• Retitling of Assets. Assets must be retitled in accordance with the terms of the trust.
• Trustee commissions may be appropriate.
• Schedule of Distribution. A schedule of distribution must be prepared and submitted to all beneficiaries.
• During the administration of the trust, prior to termination, a budget should be prepared by the Trustee to determine how funds will be distributed to or for the benefit of the beneficiaries and how long the trust assets are likely to last.
• Tax Returns and Accounting. Tax returns and accounting are required as indicated above.

BLG can assist with these trust administration and termination issues.

♦ Planning for Beneficiaries.  Beneficiaries of the estate or trust should plan for themselves and consider the following:

• Estate Planning. Beneficiaries should have Wills, Living Wills and Powers of Attorney.  During the administration of the estate, the beneficiaries should consider having these documents drafted for themselves.
• The beneficiaries should consider retaining the services of a financial advisor to assist them in managing their investments including the funds they are receiving by inheritance.
• Retirement Planning. Beneficiaries should consider retaining an investment advisor to assist them in planning for retirement.

BLG can assist in estate planning and can make referrals to financial advisors if required.

♦ Charities.  If the Will contains charitable bequests, an accounting must be filed with the New Jersey Attorney General and steps must be taken to ensure that the charities receive what is due to them.

♦ Business.  If the Decedent owned a business at the time of death, careful consideration must be given to the disposition of the business.  Was the Decedent the sole owner of the business, were there partners or other shareholders, were there Partnership Agreements, Shareholder Agreements, LLC Operating Agreements, etc.?  BLG can assist in this process.

♦ Pending Litigation.  A careful determination must be made as to whether or not there is any outstanding pending litigation or claims that may lead to litigation.  If the Personal Representative or Trustee makes a distribution without resolving that litigation, the Personal Representative or Trustee may be held personally liable.

CONCLUSION

Whether or not Federal, New Jersey Estate, or New Jersey Inheritance Tax Returns need to be filed, the process can be much more complicated than most people assume.  Service as a Personal Representative of an estate exposes the individual to liability for even honest mistakes.  By retaining Begley Law Group to assist in the administration of an estate or trust, the job of the Personal Representative or Trustee is much easier, the process moves much more quickly, and exposure to personal liability can be avoided.

Begley Law Group, P.C. has served the New Jersey and Philadelphia area for over 90 years.  Our attorneys have expertise in the areas of Personal Injury Settlement Consulting, Special Needs Planning, Long-Term Care Planning, Estate Planning, Estate & Trust Administration, and Guardianship.  Contact us today to begin the conversation.