Sale of Real Property from an Estate

There are some special issues to consider when the seller of real estate is the estate of a decedent.

Real estate held by a decedent’s estate is subject to liens for the payment of any New Jersey Transfer Inheritance Tax, New Jersey Estate Tax, Federal Estate Tax and debts of the decedent.

The N.J. Transfer Inheritance Tax is a state tax imposed on the transfer of property made upon the death of a New Jersey resident and certain non-residents, or made by such a decedent in contemplation of death. N.J.S.A. 54:34-1 et seq. The Inheritance Tax lien lasts for a period of fifteen years following the date of death. N.J.S.A. 54:35-5. This lien is discharged when the tax is paid or a bond given to the State. The N.J. Division of Taxation issues a tax waiver which is then recorded in the county clerk’s office of the county in which the property is situated. Tax waivers can be obtained before a return has been audited by the State upon submission of the estate’s Inheritance Tax return and payment of an amount deemed sufficient by the Inheritance Tax Bureau of the N.J. Division of Taxation.

New Jersey also imposes an Estate Tax on estates of resident decedents dying after December 31, 2001 if the gross value of the estate exceeds $675,000 . N.J.S.A. 54:38-1 et seq. A New Jersey estate may be subject to the N.J. Estate Tax even if it is not subject to the Federal Estate Tax. The N.J. Estate Tax also becomes a lien against property. The N.J. Estate tax lien exists as a lien against the property as of the date of decedent’s death until paid. N.J.S.A. 54:38-6. This lien can be discharged in the same manner as the N. J. Transfer Inheritance Tax lien by the issuance of a tax waiver from the N. J. Division of Taxation.

The Federal Estate Tax may be imposed on estates in the amount of $2.0 million for decedents dying in 2007 ($3.5 million commencing 2008). The Federal Estate Tax becomes a lien on the property in the estate for ten years from the date of death. I.R.C. §6324 (a)(1). To discharge the lien, a Certificate of Release of Estate Tax Lien can be obtained from the IRS and recorded with the County Clerk in the county in which the property is located.

If a tax waiver or release of lien cannot be obtained prior to closing, the buyer’s title company will frequently agree to escrow funds to cover any possible liability and to insure that the selling estate will obtain and record the waiver or release.

Finally, real estate of a decedent is liable for the debts of the decedent for one year after date of death. N.J.S.A. 3B:22-22. If the property is being sold within a year of decedent’s death, the buyer’s title company with generally require information concerning the assets and debts of the estate and a bond from the executor before agreeing to insure the property.