Why Does Estate Administration Take So Long? Part 5
In this last post of 5 I explain the reasons why the estate administration process takes as long as it does – why it isn’t as simple as getting appointed administrator and closing out all the decedent’s accounts and distributing them in a matter of days or weeks.
This week we cover taxes. We almost always must address the issue of taxes but there are different types of taxes. When someone dies we must consider estate taxes and inheritance taxes. Federal estate tax is owed on estates greater than $12.9 million (soon to increase to $13.6 million in 2024). Only a small percentage of estates ever owe federal estate tax.
New Jersey no longer has an estate tax for anyone who died on 1/1/2018 or later, however, there still is an inheritance tax. This is based on the relation of the heirs to the person who died. Certain “Class A” beneficiaries are exempt from tax. They include spouses, children and grandchildren. Distributions to more distant relatives and non relatives are subject to tax depending on which class they are assigned to.
Estate tax returns are due and the tax owed 9 months after death. Inheritance tax returns are due and the tax owed 8 months after death. Interest accrues on unpaid tax after these deadlines.
There is also the matter of income taxes. The estate representative must be sure to file and pay any income tax due for the year that the decedent died. It is also possible that a refund may come back to the estate for overpayment of income tax.
Additionally, there may be income tax owed by the estate on any interest and other income accrued while assets are held in the estate before disbursement. For example, there may be an IRA that the administrator liquidates before disbursing the cash to the heirs. Retirement accounts are tax deferred so there may have been substantial growth in these accounts resulting in a large tax bill when the entire account is liquidated. It is part of the estate representative’s responsibility to file the tax returns and pay the tax. Until all tax returns are filed and taxes paid, the estate administration process is not complete and final disbursements should not be made. That is just another reason why when I am asked how long the estate administration process takes, I say “in most cases the process can take 9 months to a year and more complicated estates longer than that”.