A Dispute Over an Executor’s Commission: What is a Permissable Commission Rate? (Part III)

By Fredrick P. Niemann, Esq. of Hanlon Niemann, a Freehold New Jersey Estate Administration Attorney

This is part 3 of a 3 part blog discussing the calculation of executor commissions in the sale of real estate in New Jersey as part of estate administration and probate.

In this case, the Court found the Director’s arguments to be unpersuasive.  The Judge ruled that the New Jersey Transfer Inheritance Tax Act imposes a tax on the transfer of real and personal property by a decedent as a result of his or her death.  Those taxes are based on the “clear fair market value of the property transferred”.  In determining the clear market value of the property, the Act clearly specifies what may be deducted.  The Act provides:
In determining the clear market value of the property the following deductions and no others shall be allowed:
• The property for which the debt is owing or for which it is secured is subject to the death tax;
• A foreign debt exceeds the value of New Jersey property securing it or for which it was contracted:
• Funeral and last illness expenses – A reasonable sum for funeral expenses and last illness.
• Administration expenses; fee of executors and attorneys – The ordinary expenses of administration, including the ordinary fees allowed executors and administrators and the ordinary fees of their attorneys.
• Payment of state, county and local taxes upon the property for the current fiscal year
• Transfer taxes of other states or the United States – Transfer taxes paid or payable to other states or territories or the District of Columbia or foreign countries on any property the transfer of which is taxable.
The New Jersey Transfer Inheritance Tax is imposed upon the transfer of property based upon the clear market value of such property.  Clear market value is ascertained by deducting from the market value of any property, the debts, expenses and taxes which constitute an encumbrance upon the property of a decedent.  No deductions are allowed, however, against any property which is exempt or not subject to the New Jersey Inheritance Tax.

The Court held that the balance of a mortgage owing on the date of death is allowed as a deduction from the value of any real property securing such mortgage, except that in the case of realty held by a decedent and a surviving spouse as tenants by the entirety, the amount of any mortgage owing on such realty at the decedent’s death is not allowable as a deduction since such property is exempt from the New Jersey Inheritance Tax.

The deduction for executor’s or administrator’s commissions shall be determined in accordance with NJ law, as of the date of death of decedent as follows:
• 5% on the first $200,000 of all corpus received by the fiduciary;
• 3.5% on the excess over $200,000 up to $1,000,000;
• 2% on the excess over $1,000,000; and
• 1% of all corpus for each additional fiduciary provided that no one fiduciary shall be entitled to any greater commission than that which would be allowed if there were but one fiduciary involved.

Contact me personally today to discuss your New Jersey administration and probate matter.  I am easy to talk to, very approachable and can offer you practical, legal ways to handle your concerns.  You can reach me toll free at (855) 376-5291 or e-mail me at fniemann@hnlawfirm.com.

If You Die Without a Will, Who Gets Your Estate Under New Jersey Law?

By Fredrick P. Niemann, Esq. of Hanlon Niemann, a Probate and Estate Administration Law firm of Freehold Monmouth County New Jersey

When no will exists, the statutes of New Jersey provide for the distribution of property to heirs, that is, by intestate succession.

How will your property be divided if you have no will? The chart below shows how an estate is distributed in New Jersey if you do not leave a last will.  If you die without a will and are a resident of New Jersey, State law provides the manner for distributing your property.  Your net estate remaining after deduction of debts, taxes and family exemptions, etc., will be distributed to your heirs as follows.

• Real estate and other property owned jointly by husband and wife is automatically owned by the survivor spouse.
• Real estate and property with a beneficiary designation goes to the person designated as the beneficiary.
• A surviving wife or husband receives $50,000 plus one-half of the balance of the probate estate.
• A child or children receive one half of the probate estate balance divided equally.
• Grandchildren take their deceased parent’s share of the estate unless all children are deceased, then all grandchildren share equally
In second marriage’s where there is a surviving spouse and a child or children and one or more  children are not the biological children of surviving spouse, then:
• The surviving wife or husband receives one half of the probate estate
• A child receives one half or children receive one half divided equally
• Grandchildren take their deceased parent’s share unless all children are deceased, then all grandchildren share equally.
If a person dies leaving a wife or husband but no children or decedents of children but leaves as a survivor;
a) A mother or father, the wife or husband received $50,000 plus one half of balance and the mother and father, or survivor, receives one half of balance
b) If no parent survives, then the wife or husband receives it all,
If a person dies leaving a child or children but no wife or husband:
• The child or children receive the entire estate divided equally
• Grandchildren take their deceased parent’s share unless all children are deceased, then all grandchildren share equally.
If a person dies leaving no wife or husband and no children or decedents but;
a)  A mother or father survives, the mother and father, or survivor, receives the entire estate
b) If no parent survives, then brothers sisters receive all divided equally, nieces and nephews take their deceased parents share unless all brothers and sisters are deceased, then all nieces and nephews share equally.

More remote cases are not covered here.  Remember, the State of New Jersey takes your property if you leave no wife or husband; child or its descendants; parent; brother or sister of their descendants; grandparent; or uncle or aunt or their children; or their grandchildren.

If any person fails to survive the decedent by 120 hours is deemed to have predeceased the decedent for purposes in intestate succession.

Contact me personally today to discuss your New Jersey probate estate matter.  I am easy to talk to, very approachable and can offer you practical, legal ways to handle your concerns.  You can reach me toll free at (855) 376-5291 or e-mail me at fniemann@hnlawfirm.com.

A Dispute Over an Executor’s Commission: What is a Permissable Commission Rate? (Part I)

By Fredrick P. Niemann, Esq. of Hanlon Niemann, a Freehold New Jersey Estate Administration Attorney

I just read a new case and wanted to share it with you.  The issue involved executors commission and whether the commission under NJ law is calculated as a percentage of the gross fair market value , or the net value, after subtracting the outstanding mortgages payable at the time the administrator sold the real estate.

In this case, a bank became the Administrator of the estate and sold the property for $172,500.  After paying off the principal mortgage and interest of $132,017.94, the net value of the property was $40,482.06.

The bank filed the Estate’s transfer inheritance tax return, which included an administration expense deduction of $8,625.  The bank calculated the deduction by taking 5% of the Estate’s gross value, of $172,500.  After examining the return, the Director issued a Notice of Assessment on August 17, 2002, denying the full value of the Estate’s administration expense deduction.  The director allowed an administration expense deduction of only $2,004, which was calculated by taking 5% of the net value of the property (i.e., $40,482.06)

The Estate filed a protest with the Transfer Inheritance Tax Branch challenging the Director’s Notice of Assessment.  In my next post, I will give you the decision.

Contact me personally today to discuss your New Jersey administration and probate matter.  I am easy to talk to, very approachable and can offer you practical, legal ways to handle your concerns.  You can reach me toll free at (855) 376-5291 or e-mail me at fniemann@hnlawfirm.com.

 

A Dispute Over An Executor’s Commission: What is a Permissable Commission Rate? (Part II)

By Fredrick P. Niemann, Esq. of Hanlon Niemann, a Freehold New Jersey Estate Administration Attorney

This is part 2 of a 3 part blog discussing the calculation of executor commissions on real estate.  In this case, the Estate argued that NJ Law authorizes the deduction of “ordinary expenses of administration, including the fees allowed executors and administrators,” in determining the fair market value of the property for Inheritance Tax purposes.  The amount of the deduction, the Estate argued, is calculated by taking 5% of the first $200,000 of the gross value of the estate.  Accordingly, the Estate contends that the allowable deduction from for an executors commission from the taxable estate should be 5% of $172,500 or $8,625.

The Director of taxation argued that the term “ordinary expenses of administration” and “ordinary fees allowed executors and administrators,” did not allow a gross value calculation under the law.  The director cited his authority to promulgate regulations to help determine what the Legislature meant by allowing the deduction for the “ordinary expenses of administration, including the ordinary fees allowed executors and administrators,” in determining the clear market value of the property.  Pursuant to that authority, the Director argued that these regulations only allow the estate to deduct “ordinary expenses of administration” based on the net value of the Estate’s assets, after all encumbrances are deducted.

Moreover, the Director contended that it has construed the “ordinary expenses of administration” deduction pursuant to NJ laws consistently for nearly thirty years.  The Director argued that since this long-standing administrative construction of NJ laws has remained undisturbed by the Legislature, it must be accorded substantial weight as evidence of conformity with the legislative intent of the statue.  In my next post, I will explain the Court’s decision.

Contact me personally today to discuss your New Jersey administration and probate matter.  I am easy to talk to, very approachable and can offer you practical, legal ways to handle your concerns.  You can reach me toll free at (855) 376-5291 or e-mail me at fniemann@hnlawfirm.com.

Choosing a Fiduciary: It’s a Job, Not a Reward

By Fredrick P. Niemann, Esq. of Hanlon Niemann, a Freehold NJ Estate Administration Attorney

We spend about 45 years of our lives slaving to provide for our retirement and to leave a legacy for our family.  By some standards, that’s approximately 85,000 hours at work, probably more.  So tell me, why so many of us spend so little time deciding who will protect our life’s savings if we become incapacitated before our death and then after we die?

The decision of who will serve as the personal representative of your estate or the trustee of your trust (collectively, your “fiduciaries”) should be one of the most important decisions you make during the estate planning process, yet this decision is often made thoughtlessly or in haste. There are many options available to you when selecting your fiduciaries.  You may decide to name a single family member, trusted advisor, bank or trust company, or you may decide to name multiple fiduciaries to manage your estate and/or trust.

It is very common for an individual to name a surviving spouse, child or other family member to serve as the fiduciary. There are plenty of advantages to naming a family member, including the fact that they often will serve without charging a fee. Because they have a personal stake in the estate or trust and probably are familiar with you and our values, they may know some of the more intimate details associated with your family and assets.  As such, a family member may have a greater understanding of your estate planning goals and objectives.

Naming a family member as your sole fiduciary may also have some significant disadvantages. For example, the person named may be overcome with grief, become ill or become disabled and be unable to act in the future, particularly if he or she is an aging spouse. The family member serving as the fiduciary may encounter conflicts among siblings, more distant or estranged beneficiaries or lack of skills to distribute and divide the assets.  In the case of a second marriage, conflicts often develop between the new spouse and the children of the deceased parent. Finally, the individual may lack the time, organization skills or intellectual ability to serve as the fiduciary. An alternative to naming a family member is to name a bank or trust company to serve alone or as co-fiduciary with a family member. Naming a professional or corporate fiduciary has many benefits, especially when it comes to actually administering the estate or trust.  Because of the considerable experience these fiduciaries have with estates and trusts they understand the accounting, tax and compliance issues associated with estate administration and therefore will often be more efficient. Further, because they don’t have a stake or personal interest in the administration, a bank can be more objective and impartial when making decisions regarding distributions to beneficiaries.  Finally, a corporate trustee will provide experienced and professional investment advice.

Naming a professional or corporate trustee also has some disadvantages, including the fees for their services and their investment decisions may be more conservative than the beneficiaries’ desire. However, fees charged by a corporate fiduciary may be no more than an individual trustee pays to delegate the investment decisions to a professional advisor or a paid CPA or attorney to assist with the income tax issues, and conservative investments may not be bad.

In making decisions regarding fiduciaries, it is important to select someone who is financially responsible, stable, trustworthy and organized and has enough time to handle all of their responsibilities. All too often, this decision is based solely upon the desire to avoid fees charged by professionals, banks or trust companies. However, when selecting a fiduciary it is important to think of the appointment as a job, not a way to reward (or punish) that chosen person. The question to ask is, would you hire that person to run your business or your household while you’re alive? If not, why put them in charge after you’re gone?

If you have questions regarding estate planning or estate administration in New Jersey, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  You can also visit our dedicated sites at www.njestateplanninglawattorney.com, www.njestateadministrationlawyer.com, and www.probateattorneyinnewjersey.com.