Debts, Taxes, and Probate

The saying goes that two things in life are certain—death and taxes, and nobody likes either one of those things. They have a lot in common though, what with all the forms and big words and figuring out whether or not you owe money or might even get some back. It’s a lot to take in when we’re alive, and it can be just as much, if not more so, for our family when we’re gone. We’ve got our brain doing cartwheels and backflips in our head trying to make sense of what’s just happened; trying to figure out estate taxes on top of all that can just make things worse.

So, what can you do to make sure that everything goes as smoothly as possible? If you have been named executor or representative of the estate, it’s your job to pay any debts or expenses the estate might have. You can also request an Oder Limiting Creditors from the court, that lets creditors have a full six months to bring forward any claims.

If that’s still not enough time to pay off debts, you can then turn to state law (in New Jersey, claims are prioritized). In doing so, family is normally paid first. Any remaining spouse or children under 18 can get a year’s worth of support. Next, funeral costs, the costs of probate, and any expenses from the last illness and taxes, in that order. While that seems like a lot (and it is), you only need to consult this laundry list of items if you’re unable to pay all your bills.

An executor or administrator will also need to file final New Jersey and federal income tax returns for the deceased. Normally, these are due on April 15^th of the year following death. Income tax pay also be required on the estate itself if the estate has an income.

A federal estate tax return is also necessary, but only if it is a very large estate. Ninety-nine percent of all estates DO NOT owe this. However, a New Jersey estate tax can affect much smaller estates (like those worth more than $675,000).

New Jersey also has an inheritance tax, though unlike estate tax, it is not based on the whole estate, but rather simply the one who inherits, and more distant relatives often pay a higher rate than closer family members.

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