new jersey bankers’ association...30 trusts –n.j.a.c. 18:26-11.13(c) waivers are not issued for...

New Jersey Bankers’ Association

Decedents’ Accounts Seminar

Gerard G. Brew, Esq.

Laura A. Kelly, Esq.

Timothy M. Ferges, Esq.

2

What is “probate”?

3

Probate Assets Non-Probate Assets

Jewelry

Furniture

Car

Real Estate in Sole Name

Life Insurance Payable

to Estate

IRA

P.O.D Account

Trust Account

Real Estate with Rights

of Survivorship

Life Insurance Payable

to Beneficiary

Examples:

4

Intestacy: So you die without a will...

...and you’re married, with descendants.

Are all of your surviving descendants also descendants

of your surviving spouse, and there is no other

descendant of your surviving spouse surviving you?

If so, your surviving spouse gets the entire intestate

estate.

5

Ozzie Harriet

m.

RickDavid

Intestacy – Look to NJ Statute

6

Ozzie Harriet

m.

RickDavid


7

Ozzie Harriet

m.

RickDavid


8


...and you’re married, with descendants.

Are all of your surviving descendants also descendants of

your surviving spouse, but your surviving spouse has one

or more descendants who aren’t descendants of yours?

Do you have surviving descendants who aren’t also

descendants of your surviving spouse?

If so, your surviving spouse gets:

♦ The first 25% of the intestate estate (but not less than

$50,000 or more than $200,000), plus

♦ One half of the balance of the intestate estate.

9

Mike

m1.

PeterGreg Bobby

m2.

Carol

m1.

JanMarcia Cindy


10

Mike

m1.

PeterGreg Bobby

m2.

Carol

m1.

JanMarcia Cindy


1/2 of Balance

1st 25% of Intestate Estate (not less than $50,000 or more than $200,000) Plus 1/2 of Balance

11


...and you’re married, without descendants.

Is one of your parents living?

If so, your surviving spouse gets:

♦ The first 25% of the intestate estate (but not less than

$50,000 or more than $200,000), plus

♦ Three fourths of the balance of the intestate estate.

If not, your surviving spouse gets the entire intestate estate.

12


m. m.

m.

Husband Wife

13


m. m.

m.

Husband Wife

1/4 of

Balance

1st 25% of Intestate Estate (not less than $50,000 or more than $200,000) Plus 3/4 of Balance

14


What happens to the property not disposed of under the

above slides?

In general, property will pass:

♦ To your descendants or, if none is living,

♦ To your parents, equally or all to the survivor of them, or, if

neither is living,

♦ To the descendants of your parents, or either of them, or, if none

is living,

♦ Half to your maternal grandparents (or, if deceased, their

descendants) and half to your paternal grandparents (or, if

deceased, their descendants) or, if none is living,

♦ To your stepchildren or their descendants.

15

Intestacy – Small Estates

♦ Affidavit of Surviving Spouse

– Estate $20,000 or less

♦ Affidavit of Next of Kin

– No Surviving Spouse

– Estate $10,000 or less

16

Federal Estate Tax

♦ Gross Estate

– Real Estate

– Stocks + Bonds

– Cash

– Life Insurance

– Some Trust Interests

– Tangible Personal Property

– Retirement Plans

– Joint Property

17

Federal Estate Tax Exemption and Estate Tax Rates

Year Exemption Rate

2015 $5,430,000 40%

2016 $5,450,000 40%

2017 $5,490,000 40%

18

Federal Estate Tax

♦ Accounts are not frozen and waivers are not required

for federal estate taxes on personal assets.

19

New Jersey Estate Tax

♦ Prior Law

– NJ imposed an estate tax equal to the credit granted

under the Federal Estate Tax.

20

New Jersey Estate Tax – 2001 Change

to Federal Estate Tax

♦ Example: $2 million taxable estate – NJ Estate Tax

YearCredit for State

Estate Tax

Actual NJ

Estate Tax

2001 $99,600 $99,600

2002 $74,700 $99,600

2003 $49,800 $99,600

2004 $24,900 $99,600

2005-2007 $0 $99,600

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♦ Prior to January 1, 2017

– For those dying between January 1, 2002 - December 31,

2016, NJ Estate Tax Exemption was $675,000.

Federal Estate

Tax Exemption

(w/o inflation adj.)

NJ Estate

Tax Exemption

Exposed to NJ Estate Tax

$391,600 NJ Tax Due

22


♦ Current law

– For those dying after January 1, 2017 - December 31, 2017,

NJ Estate Tax Exemption is $2 million.

Federal Estate

Tax Exemption

(w/o inflation adj.)

NJ Estate

Tax Exemption

Exposed to NJ Estate Tax

$292,000 NJ Tax Due

23

New Jersey Inheritance Tax

♦ Class A Beneficiaries:

– Parents, grandparents, spouse, children, adopted

children, issue of children or adopted children, step

children and mutually-acknowledged children

– Also (since July 10, 2004) a domestic partner of the

decedent and (since February 19, 2007) a civil union

partner of the decedent

♦ Exempt Amount: All

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♦ Class C Beneficiaries:

– Brother or sister of the decedent, wife or widow of the

decedent’s son, husband or widower of decedent’s

daughter

♦ Exempt Amount: $25,000

♦ Tax Rates:

– Any amount up to $1,100,000 11%

Any amount over $1,100,000 up to $1,400,000 13%

Any amount over $1,400,000 up to $1,700,000 14%

Any amount over $1,700,000 16%


25


♦ Class D Beneficiaries:

– All other transferees

♦ Exempt Amount: None

♦ Tax Rates:

– Any amount up to $700,000 15%

Any amount over $700,000 16%

26


♦ Class E Beneficiaries:

– Tax exempt entities and organizations

♦ Exempt Amount: All

27

Tax Liens

♦ NJ Estate Tax

– Tax remains a lien on all property of the decedent until paid.

– No property owned by the decedent may be transferred

without the written consent of the Director of the Division of

Taxation.

♦ NJ Inheritance Tax

– Tax remains a lien on all property of the decedent for a

period of 15 years after the decedent’s death, unless sooner

paid or secured by a bond.

– To transfer certain property, need the written consent of the

Director of the Division of Taxation.

♦ Director’s written consent = “waiver”.

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Examples of Transfers NOT Requiring a Waiver

N.J.A.C. 18:26-11.13

♦ Automobiles

♦ Household goods and personal effects

♦ Payment under pension, profit sharing, bonus or stock

purchase plans

♦ Funds held in an account in the name of a funeral director

in trust for decedent (advance funeral payments)

♦ Real or personal property owned by a partnership in which

the decedent had an interest (N.J.A.C. 18:26-11.11)

♦ Property not subject to NJ Inheritance Tax or NJ Estate

Tax (N.J.A.C. 18:26-11.14)

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Fiduciary to Fiduciary Transfers

– N.J.A.C. 18:26-11.9, - 11.10

♦ Bonds or stock of a NJ corporation or national bank

located in NJ or any money deposited in a bank or

other institution...

– in the name of a fiduciary as executor, administrator,

trustee of guardian may, upon the fiduciary’s death, be

transferred without a waiver to, or on the order of, the

deceased fiduciary’s legally-appointed substitute.

– in the name of two or more fiduciaries as executor,

administrator, trustee of guardian may, upon the

fiduciary’s death, be transferred without a waiver to, or

on the order of, the surviving fiduciary or fiduciaries.

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Trusts

– N.J.A.C. 18:26-11.13(c)

♦ Waivers are not issued for the transfer of property held

in revocable or irrevocable trusts (even if the transfer

may be taxable).

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Nonresident Decedents –

N.J.A.C. 18:26-11.1(b)

♦ Not subject to NJ estate tax.

Only subject to NJ inheritance tax on real estate and

tangible personal property that is located in NJ.

– No waiver required (except to transfer NJ real estate)

– However, need affidavit of domicile from personal

representative of decedent’s estate.

– Keep affidavit of domicile on file permanently.

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No Waiver Needed; Notice Required –

N.J.A.C. 18:26-11.8

♦ No waiver is needed for the transfer of:

– A decedent’s checking account in any bank to an

interest-bearing account in the same bank in the name

of the decedent or his estate,

– An IRA or Keogh retirement plan account to another

account in the same bank, or

– A CD or other preferred account containing the

decedent’s funds to another account in the same bank.

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No Waiver Needed; Notice Required –

N.J.A.C. 18:26-11.8 (continued)

IF: The bank retains the same control over the substituted account as

the original account until the NJ estate and inheritance taxes are paid,

AND:

The bank notifies the Transfer Inheritance and Estate Tax Section of

the Individual Tax Audit Branch (P.O. Box 249, Trenton, NJ 08646) of

the decedent’s name, (ii) his date of death and domicile, (iii) the

executor’s name and address, and (iv) the account number (or

certificate number) to be transferred and its balance (or maturity value)

as of the date of death.

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Form L-8

♦ May only be used if decedent’s taxable estate plus adjusted taxable gifts is

$675,000 or less (death in 2016 or prior) or less than $2 million (after

2017).

– A self-executing waiver that allows the transfer of intangible NJ assets

(e.g., bank accounts, stocks and bonds) to a Class A beneficiary (other

than a mutually-acknowledged child).

– Class A beneficiary (for L-8 purposes) = Parents, grandparents,

spouse, children, adopted children, issue of children or adopted

children and step children.

– A civil union partner may use Form L-8 for decedents dying on or after

February 19, 2007.

– A NJ domestic partner with a NJ Certificate of Domestic Partnership

may use Form L-8 for decedents dying on or after July 10, 2004. If

relationship established outside of NJ, cannot use Form L-8.

– Filed directly with the bank or stock transfer agent.

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Form L-8

Does the account pass to a Class A beneficiary as the surviving

joint tenant or as the named beneficiary of the account?

♦ The Class A beneficiary can execute Form L-8. The account is

released to the Class A beneficiary.

Does the account pass to a Class A beneficiary under the will?

♦ The executor or administrator can execute Form L-8. The

account is released to the Class A beneficiary.

♦ The Class A beneficiary can’t execute Form L-8 to transfer the

account to himself, unless the Class A beneficiary transferee

qualified as executor or administrator. If so, attach will to Form

L-8.

36

Form L-8

♦ The bank must thoroughly instruct the person signing

the form as to its contents.

♦ The original Form L-8 must be filed with the Division of

Taxation within 5 business days of its execution.

37

Blanket Waiver – N.J.A.C 18:26-11.16

♦ Applies to:

– Any banking institution, trust company or safe deposit

company organized under the laws of NJ

– Any national bank operating in NJ, building and loan or

savings and loan association organized in NJ

– Any credit union charted by the U.S. and operating in

NJ

– Any corporation or person

38

Blanket Waiver – Release of Funds

♦ Permits a banking institution to release any amount up to 50% of the

entire amount of funds on hand held in deposit, standing in the name of

a resident decedent or in the joint names of the decedent and one or

more other persons to:

– An executor

– An administrator

– The legal representative of the decedent

– A surviving joint tenant

– A cestui que trust (a person who has the beneficial interest in property, the

legal title in which is vested in a trustee)

– The estate of a minor, where title to the funds are held in the name of a

custodian for the minor

...without a waiver, upon the application of such property party to the

bank.

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Blanket Waiver – Caution:

Joint Accounts

♦ The blanket waiver is limited to 50% of the funds in the

entire account, whether held by the decedent

individually or jointly with another.

♦ In a joint account, only 50% of the account may be

released – not the half claimed by the joint owner AND

an additional half of the funds belonging to the

decedent.

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Blanket Waiver – Permitted Payments

♦ No waiver is needed for the banking institution to:

– Pay checks drawn on the decedent’s account that are

issued prior to death and presented for payment within

10 days after the decedent’s death

– The amount of any checks so paid is deducted from the

value of the account before calculating the 50% that

may subsequently be released under the blanket

waiver.

– Pay checks representing full or partial payment of NJ

inheritance tax or estate tax that are made payable to

“New Jersey Inheritance and Estate Tax”.

41

Blanket Waiver – Permitted Payments

– Liquidate the loan of a decedent who has pledged the

pass book representing a savings account as collateral

for the loan where, upon the decedent’s death, the loan

is in default.

– After the liquidation, 50% of the remaining funds may be

made available for release under the blanket waiver.

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Blanket Waiver

♦ The blanket waiver does not apply to the transfer of

securities of a NJ corporation, registered in the

decedent’s name and issued by any bank or savings

and loan association situated in NJ.

(N.J.A.C. 18:26-11.16(d))

♦ A waiver must be obtained to transfer or release such

assets.

43

Waiver Required

♦ If one of the above exceptions does not apply, a waiver is

needed to release or transfer a decedent’s assets.

♦ Waivers generally are issued upon acceptance by the tax

authorities of the NJ estate and inheritance tax returns as

filed (or, if audited, after the tax proceedings have been

completed and the tax payment has been received).

♦ Unless the Director expressly approves, waivers are not

issued until the passage of 10 business days after the

receipt of the tax payment. A request can be made to

transfer a specific asset or assets by submitting a

preliminary affidavit (Form L-4).

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Payable on Death Accounts --

N.J.A.C. 18:26-11.18

♦ Where funds are held on deposit to the credit of a

person and payable upon the death of such person

(the “principal”) to a named beneficiary:

– If the named beneficiary dies, no waiver needed to

transfer or release the funds to the principal.

– If the principal dies, a waiver is needed to transfer or

release the funds to the named beneficiary.

45

Penalty

♦ Any institution failing to comply with the waiver rules is liable

for (i) the amount of tax and interest due upon the securities,

deposits, shares of stock or other assets transferred or

delivered AND (ii) a penalty of $1,000. N.J.A.C. 18:26-

11.32(a)

♦ Exception: A safe deposit company, trust company, bank,

other institution, corporation or person is not liable for the tax

and interest or penalty where it delivers securities, deposits

shares of stock or other assets belonging to or standing in the

names of two or more persons to one of such persons without

knowledge or reasonable ground to believe that another one

of such persons is dead. N.J.A.C. 18:26-11.32(b)

46

Safe Deposit Boxes

♦ N.J.A.C 18:-26-11.20 provides for a blanket release to

be issued by the Transfer Inheritance Tax Branch to

safe deposit companies, trust companies, banks and

other institutions allowing for the release of the

contents of a safe deposit box without inspection and

inventory.

♦ In the presence of a bank employee, the executor

(upon proof of identity) can have access to a safe

deposit box immediately after the decedent’s death to

remove the original will.

47

Durable Powers of Attorney

♦ Definition

♦ When Effective

♦ Revocation

♦ Reliance by Banking Institutions / Grounds for Refusal

48

Example: Fiduciary to Fiduciary

Transfers

♦ Richard acts as trustee of the Worthington Trust. The

trust has an account with New Jersey Bank. Richard

dies. His wife, Emily, who is named in the trust

instrument as successor trustee, wants to move the

trust’s account to a different bank that is closer to her

home.

– No waiver required because the account is in the

Worthington Trust’s – not Richard’s – name.

49

Example: Fiduciary to Fiduciary

Transfers

– Before transferring the funds to Emily, as trustee,

consult senior management or the bank’s attorney to

review:

– A copy of Richard’s death certificate,

– The document creating the Worthington Trust, and

– Emily’s acceptance of her appointment as trustee of the

trust.

50

Examples: P.O.D. Account

♦ New Jersey Bank has an account entitled “Abigail

Adams, P.O.D. John Q. Adams”.

A. John, Abigail’s son, dies.

Upon proof of John’s death, the bank can pay the

entire account to Abigail. No documents are

necessary.

51

Examples: P.O.D. Account (continued)

B. Abigail dies.

– Upon proof of Abigail’s death, the bank can distribute 50% of the

account to John under the blanket waiver.

– (If John were under age 18, the bank could distribute 50% of the

account to John’s legal guardian. (Need certificate of

appointment of guardian from the Surrogate.))

– Balance of the account

– If Abigail’s taxable estate plus adjusted taxable gifts is less than

$2M, the bank can release the balance to John upon receiving

Form L-8.

– If Abigail’s taxable estate plus adjusted taxable gifts is $2M or

more, the bank can release the balance to John only upon receipt

of a waiver.

52

Examples: Nonresident Decedent

♦ Wayne Newton, a long-time resident of Las Vegas, Nevada, dies at

age 98 while performing a particularly vigorous show at Caesar’s

Palace. At New Jersey Bank, there is (i) a bank account in his own

name, and (ii) a bank account held by Wayne and his cousin, Fig, as

joint tenants with rights of survivorship.

– First consideration (for either account): Need an affidavit of

domicile.

– If any doubt as to whether Wayne was not a NJ resident, have the

representative of Wayne’s estate contact the NJ Inheritance Tax

Branch for a ruling before releasing more than one half of the

account.

– If Wayne was not a NJ resident, no waiver is necessary to transfer

the accounts.

53

Examples: Nonresident Decedent

(continued)

♦ Wayne’s account

– Need Surrogate’s Certificate from the State where

Wayne died domiciled.

– Pay account assets to “Estate of Wayne Newton”.

♦ Account of Wayne and Fig

– Need Wayne’s death certificate.

– Assets of entire account may be released to Fig.

54

Example: Safe Deposit Box – Part 1

♦ Fester Adams appears one day at New Jersey Bank to report

that his brother, Gomez, has died. Fester tells Tabitha Teller

that he is named executor of the will, which he believes to be in

the safe deposit box that Gomez maintained at New Jersey

Bank.

– Fester provides Tabitha with Gomez’s death certificate.

– Fester provides Tabitha with proof of his identity.

– Tabitha accompanies Fester as he opens the safe deposit

box. It contains Gomez’s will and some Spanish doubloons.

– Tabitha checks Gomez’s will, and it does name Fester as

executor.

– Tabitha allows Fester to remove only the will.

55

Example: Safe Deposit Box – Part 2

♦ Fester Adams, having been appointed executor of the will of his

brother, Gomez, appears at New Jersey Bank to remove the

contents of Gomez’s safe deposit box.

– Fester provides Tabitha Teller with Gomez’s death certificate.

– Fester provides Tabitha with a short certificate.

– No waiver needed to release the contents of the box to

Fester, without inventory and inspection of contents.

56

Example: Powers of Attorney

♦ Before leaving for prison, Carlos gives his wife power

of attorney over his checking account with New Jersey

Bank. Carlos dies in prison. His grieving widow,

Gabrielle, attempts to withdraw all of the funds from

the account under her power of attorney.

♦ The bank may not distribute the funds to Gabrielle.

Her authority under the power of attorney terminated

upon Carlos’ death.

57

Example: Estate #1

♦ Ozzie Nelson died, survived by his wife, Harriet, and

his sons, David and Rick. Ozzie’s taxable estate is

less than $2M, and he made no lifetime gifts. He has

the following accounts at New Jersey Bank:

– Bank account in his name alone $100,000

– Bank account held jointly with

rights of survivorship with Harriet $200,000

58

Example: Estate #1 (continued)

♦ Ozzie’s will leaves everything to Harriet. Harriet is named

executor.

– Ozzie’s account

Need to see a short certificate.

Harriet is a Class A beneficiary, and Ozzie’s taxable estate is

less than $2M. Upon receipt of L-8, can pay account to “Harriet

Nelson”.

– Joint account

A joint account is a non-probate asset. No need for a short

certificate.

Harriet, the surviving joint tenant, is a Class A beneficiary.

Ozzie’s taxable estate is less than $2M. Upon receipt of

L-8, can pay account to “Harriet Nelson”.

59

Example: Estate #1-A

Before Ozzie died, he won the NJ lottery. At his death, he

left a gross estate – with everything held in an account at

NJ Bank – valued at over $22 million. Ozzie made no

taxable gifts before he died.

Ozzie’s will leaves everything to his wife, Harriet, who

survived him. Harriet is named executor.

♦ Need a short certificate.

♦ Harriet is a Class A beneficiary. Although Ozzie’s gross

estate exceeds $2M, his taxable estate does not. Upon

receipt of L-8, can pay account to “Harriet Nelson”.

60

Example: Estate #2

Jackie died, survived by her daughter, Caroline. Jackie’s husband

predeceased her. Jackie’s taxable estate exceeds $675,000. She has

the following accounts at New Jersey Bank.

Date of Death Balance

Checking account in her name alone $100,000

Checking account held jointly with rights

of survivorship with Caroline $500,000

Jackie’s will leaves everything to Caroline except a gift to a friend.

Caroline is named executor.

Just before she died, Jackie wrote a check for $10,000 to pay the

upkeep on one of her horses. The check did not clear before she died.

61


♦ Checking account

– Two days after Jackie’s death, the “horse” check is

presented for payment. The bank may pay the $10,000

to the stable.

– Upon receipt of Caroline’s short certificate, the bank can

distribute up to $45,000 to “The Estate of Jackie”.

The blanket waiver permits the bank to release 50% of

the account.

($100,000 date of death balance, less $10,000 check

payment) / 2 = $45,000

62


– Balance of individual checking account

L-8 may not be used because Jackie’s taxable estate

exceeds $2M.

– Caroline, as executor, writes a check for $25,000 to

“New Jersey Inheritance and Estate Tax” to pay part of

the NJ inheritance tax due (gift to friend). The blanket

waiver permits the bank to pay this check.

– Upon receipt of Caroline’s short certificate and a waiver,

the bank can distribute the remaining balance ($20,000)

to Caroline.

63


♦ Joint account with Caroline

– The bank can distribute $250,000 to Caroline, as

surviving joint tenant.

The blanket waiver permits the bank to release 50% of

the account.

$500,000 date of death balance / 2 = $250,000

– Balance of account

L-8 may not be used because Jackie’s taxable estate

exceeds $2M.

Upon receipt of a waiver, the bank can distribute thee of

the account to Caroline.

64

Disclaimer

These are general rules that are provided as guidelines.

Rules can (and often do) change!

Every situation is different. If you have any doubt about

if, when and how much of a decedent’s account should

be released, you should consult senior management

and/or an attorney.

new jersey bankers’ association...30 trusts –n.j.a.c. 18:26-11.13(c) waivers are not issued for...

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