For Inherited NJ Real Estate, Don’t Forget the L-9
Apr 21, 2021 | Written by: | Share
Since the State of New Jersey has eliminated the New Jersey estate tax, the amount of resident decedent’s estates that need to file returns has been significantly reduced. The New Jersey inheritance tax is still applicable, but that tax reporting requirement only applies to estates where the distributees are not “Class A” beneficiaries – spouses, descendants, stepchildren, and parents – which further reduces the number of estates that must file a return after death.
When a NJ estate tax return or a NJ inheritance tax return is filed and any resulting tax is paid, the State tax authorities issue New Jersey estate/inheritance tax waivers. Waivers are issued for any New Jersey situs assets such as bank accounts, investments, and real property. These waivers establish that the assets named on the waivers are free from any NJ death tax liens, either because the tax was paid or because no tax was due. Waivers for real property are recorded with the County Clerk.
Before a parcel of New Jersey real estate with an estate in the chain of title is sold, the purchaser’s title company searches to see if a waiver has been recorded, thereby assuring the purchaser that the tax authorities will not be seeking to foreclose the property to pay death taxes.
Now that less NJ death tax returns are being filed, when an estate is not required to file an inheritance tax return, it is easy to forget that a tax waiver is still needed to establish that a decedent’s real property is free from state death tax liens. To obtain such a waiver, the estate representative needs to file Form L-9 (Affidavit for Real Property Tax Waiver) with the state tax division. In such Affidavit, the estate representative lists the beneficiaries and their relationship to the decedent so that the tax authorities can verify that only Class A beneficiaries will receive distributions. Without this Affidavit, the state tax authorities are not able to establish whether the absence of a filed inheritance tax return is due to oversight on the part of the fiduciary or to the fact that all distributees fall within the Class A guidelines.
There is one exception to this need to file a Form L-9 (Affidavit for Real Property Tax Waiver). When the title to real property is held jointly by two spouses or civil union partners, then no Affidavit is needed as it is acknowledged that the decedent’s interest in the real property will pass tax-free to the survivor. In fact, the State tax authorities refuse to issue waivers in such situations. If this is not the situation, it is important to remember to file the L-9!
Lori K. MacWilliam, Esq. focuses her law practice on real estate, estate planning & administration, and general corporate matters. Please feel free to contact her at 908-735-5161 or via email.
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Any statements made herein are solely for informational purposes only and should not be relied upon or construed as legal advice.