Debts and Taxes | Distribution of Assets and Closing of the Estate
In the first blog in the series, we looked at the requirement that the executor or administrator must be formally appointed by the surrogate court, and briefly discussed the obligations with respect to handling of estate property. One of the tasks assigned to the executor is the payment of remaining debts and the handling of any tax obligations.
Payment of Debts
An executor or administrator must, to the extent possible, pay any valid expenses or debts of the estate. If the executor or administrator requests an order limiting creditors from the probate court, anyone with a legitimate claim against the estate will have 9 months to submit that claim. Once the 9 months passes, the executor or administrator will be free to distribute the estate if no claims have been made.
If there are insufficient assets to pay all obligations of the estate (i.e. an insolvent estate), the distribution estate assets will be prioritized under New Jersey law. Funeral expenses and administration expense are prioritized over other creditors.
New Jersey and federal income tax returns must also be filed on behalf of the deceased. The estate may also be required to file a fiduciary income tax return, if the estate receives income over a certain amount during administration.
A federal estate tax return may be required for large estates. In 2019, the amount exempted from federal estate taxation is $11.4 million. New Jersey does not have an estate tax, but does impose an inheritance tax, which is imposed on assets which pass to more distantly related relatives and non-relatives.
Distribution of the Estate
If there are assets remaining after the payment of debts and taxes, the executor or administrator has the power to distribute them, in accordance with the terms of the will or the intestacy statute. Once all assets have passed out of the estate, the executor or administrator will be in a position to close the estate.
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