By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Estate Planning & Estate Probate Administration Attorney
A close relative is in failing health and is contemplating making a gift to a family member and the discussion leads to the question, “would this gift be subject to a gift tax?” The answer is sometimes yes, if you live in N.J. Here’s why.
An inheritance tax is assessed against any real or tangible personal property “transferred by deed, grant, bargain, sale or gift made in contemplation of the death of the grantor, vendor or donor, or intended to take effect in possession or enjoyment at or after such death.” N.J.S.A. 54:34-1(c). The transfer has to be done without (1) receiving adequate valuable consideration for the property, (2) be done within three years of the decedent’s death, and (3) not be an exempt transfer under N.J.S.A. 54:34-4. As to liability for the tax, “executors, administrators, trustees, grantees, donees or vendees shall be personally liable for any and all such taxes until paid as hereinafter directed, for which an action at law shall lie in the name of the state of New Jersey.” N.J.S.A. §54:35-2.
The specific referral to “grantees, donees or vendees” in the liability statute directly follows the transfer language in the inheritance tax statute. The law therefore states that the recipient of the uncompensated transfer pre-death bears the burden of any inheritance tax due from the transfer of property. This follows case law that states that the inheritance tax is borne by the beneficiaries and must be paid by each of them.
The executor and administrator’s duty lies in property owned by the estate. He or she is required to deduct the inheritance tax from the value of the property to be paid to the beneficiary “and he shall not deliver or be compelled to deliver any such legacy or property to any person until he has collected such tax.” N.J.S.A. §54:35-6. But the law does not state that the executor or administrator has to collect the inheritance tax due from beneficiaries who receive inter vivos transfers. That duty to pay the tax lies at the foot of the person who receives that gift.
The executor does have a duty to go after beneficiaries if an tax cannot be paid from the residuary of the estate, whether it is federal or New Jersey. N.J.S.A. 3B:24-7. If the executor cannot get anything back, he or she can compel the return of a portion of the property by an order of the Superior Court. N.J.S.A. 3B:24-8. But for transfer inheritance tax purposes, he or she has no duty to go after the beneficiaries of the inter vivos transferees, and the State will have to name these beneficiaries individually to collect inheritance tax from them should the tax go unpaid.
To discuss your NJ Estate Probate Administration matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at firstname.lastname@example.org. Please ask us about our video conferencing consultations if you are unable to come to our office.