That Pesky Tax Waiver – Part 1

                As I have written in previous posts, New Jersey did away with its estate tax in 2018.  This was part of a compromise between the state legislature and then Governor Christie who agreed to an increase in New Jersey’s gasoline tax.  I have also pointed out that we still have an inheritance tax in New Jersey, although the number of estates that must pay inheritance tax is very small.  That’s because most decedents leave their assets to spouses, children and grandchildren who are exempt from inheritance tax.

                Yet, we are finding that there are a number of estates where we must file an inheritance tax return even though no inheritance tax is owed.  That might seem strange.  The reason, however, is New Jersey’s tax waiver system.  I last wrote about the tax waiver in 2016 (see 10/10/16 post).  New Jersey places a lien by law on New Jersey assets until the state issues a waiver releasing that lien.  It is designed to insure that the inheritance tax is paid.  Once the State is satisfied, it issues this document called a tax waiver.  Financial institutions and buyers of real estate then know that the tax has been paid and the lien is released, that the State won’t come after them for any tax owing.  One way to obtain the tax waiver is to file a completed inheritance tax return.

                There is, however, another process that is designed to allow for the State to issue the waiver in cases where there is no tax due without requiring a full tax return.  New Jersey has created affidavits that can be used to obtain.  The affidavits have a series of questions which – if answered in a certain way – will allow the State to issue a waiver without the need to file a return.  There is one form for real estate and another form for financial accounts.

                Now, you would think that it is a simple as determining if inheritance tax is due to know whether you can use one of these forms.  But, unfortunately that is not the case.  Next week I’ll explain.