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  • Navigating the Six Phases of Settling a New Jersey Estate

    Navigating the Six Phases of Settling a New Jersey Estate

    The six-phase sequence and checklist order below is logical, but estates rarely move in a clean linear flow. Tax filings, creditor resolution, asset collection, and the inheritance tax process typically run in parallel. If tasks appear to occur out of sequence, consider the consequences carefully, particularly where distributions have already been made.

    Before You Start: Decide on an Attorney and a CPA

    Most executors, especially in estates with real property, business interests, or non-Class A beneficiaries, benefit from retaining both an estate attorney and a CPA experienced in fiduciary tax returns. Modest estates in working-class families, however, might not have the resources to justify the cost of both.

    Here is my rule of thumb. If there is any indication of conflict or disagreement, talk to a lawyer. If you need to stretch your budget in a modest estate with no expected conflicts, use a good CPA.

    Have at least the first conversation with the chosen professional as early as possible. It is not necessary to do this before taking the first steps, but many executors quickly find themselves overwhelmed with unfamiliar responsibilities. The attorney or CPA might want to wait until the court letters of authority are issued before entering into an engagement agreement.

    Phase 1 – Establish Legal Authority

    ☐ Step 1. Probate the will with the county Surrogate’s Court, or initiate intestacy proceedings
    This is the non-negotiable first step. Bring the original will, the death certificate, and the filing fee to the Surrogate’s Court in the county where the decedent resided. The court issues Letters Testamentary if there is a will, or Letters of Administration if there is not. Without these, you have no legal authority to do anything else on this list. If the estate is likely to be contested, involve an estate attorney before filing.

    ☐ Step 2. Send required notice to heirs and beneficiaries
    New Jersey law requires formal notice to all beneficiaries named in the will and to all statutory heirs. This starts the clock on certain objection periods.

    Phase 2 – Establish the Estate’s Financial Infrastructure

    ☐ Step 3. Obtain an EIN from the IRS for the estate and file Form 56
    The estate becomes a separate taxpayer at the moment of death. Get the EIN online at IRS.gov. File Form 56, Notice Concerning Fiduciary Relationship, to formally notify the IRS of your role and to ensure that correspondence routes to you rather than to the decedent’s address.

    ☐ Step 4. Open an estate bank account
    All estate receipts flow into this account and all disbursements flow out of it. You will need the EIN and your Letters Testamentary to open it. Do not commingle estate funds with your personal bank accounts.

    Phase 3 – Inventory, Notify Creditors, and Protect Assets

    ☐ Step 5. Prepare a complete inventory of assets
    Identify and value everything: real property, financial accounts, retirement accounts, life insurance, business interests, vehicles, and personal property. Some assets pass outside probate, including life insurance with named beneficiaries, jointly held property with right of survivorship, and IRAs with beneficiary designations. Those assets may still factor into the taxable estate.

    ☐ Step 6. Notify creditors and allow the claims period to run
    New Jersey requires formal notice to creditors. There is usually a nine-month period from the date of death during which creditors can present claims. Do not distribute assets to heirs before this period expires and all valid claims are resolved. You can be held personally liable if you do.

    ☐ Step 7. Identify and resolve any Medicaid estate recovery claims
    If the decedent received New Jersey Medicaid benefits, particularly long-term care benefits, the New Jersey Division of Medical Assistance and Health Services has a right of recovery against the estate. This must be addressed before distribution.

    Phase 4 – Tax Filings

    ☐ Step 8. File any delinquent prior-year income tax returns
    If the decedent was behind on federal Form 1040 or state NJ-1040 returns, get those filed. You sign as executor. These are the decedent’s personal obligations and must be resolved before the estate can close cleanly.

    ☐ Step 9. File the final Form 1040 and NJ-1040 for the decedent
    These cover the period from January 1 of the year of death through the date of death. The due date is the normal April 15 of the following year, with extensions available. A surviving spouse may be able to file jointly for the year of death, so evaluate that option.

    ☐ Step 10. Address the New Jersey Transfer Inheritance Tax
    New Jersey is one of only five states that still impose an inheritance tax, and the rules hinge on each beneficiary’s relationship to the decedent:

    • Class A (spouse, civil union partner, domestic partner, children, grandchildren, parents, stepchildren): exempt. Use Form L-8, the affidavit for financial institutions, or Form L-9, the real property affidavit, to release assets without a formal tax clearance proceeding.
    • Class C (siblings, sons-in-law, and daughters-in-law): taxable above $25,000, at rates of 11% to 16%.
    • Class D (all others): taxable above $500, at 15% on the first $700,000 and 16% above that.
    • Class E (qualified charities): exempt.

    When there are taxable transfers, file Form IT-R, the Inheritance Tax Return for Resident Decedents, and obtain Form 0-1, the transfer inheritance tax waiver, before transferring or selling encumbered assets.

    The tax is due eight months from the date of death. Interest accrues at an annual rate of 10% on any tax not paid by that date. Note carefully that an extension of time to file is not an extension of time to pay. Form IT-EXT extends the filing deadline only, and interest still runs from the eight-month mark. If you know tax will be owed but the return is not ready, make an estimated payment with Form IT-EP before the deadline. Escrow arrangements may be possible for real estate closings pending final tax determination.

    ☐ Step 11. Determine whether a federal estate tax return (Form 706) is required
    The federal estate tax applies only to gross estates exceeding the current exemption. If a return is required, Form 706 is due nine months after death, with a six-month extension available. New Jersey repealed its own estate tax effective January 1, 2018, so there is no longer a separate New Jersey estate tax return.

    ☐ Step 12. File Form 1041 and NJ-1041 for estate income
    The estate is a separate income tax entity from the moment of death. Income earned after death, including interest, dividends, rental income, and gains on asset sales, is reported on Form 1041 and NJ-1041. The estate may elect a fiscal year ending in any month, which gives you some flexibility in timing distributions and deductions. These filings may span multiple tax years if administration is prolonged.

    ☐ Step 13. File Forms 1042 and 1042-S only if applicable
    These are relevant only if the estate has foreign, nonresident alien beneficiaries, or certain types of U.S.-source income payable to foreign persons. They are not standard New Jersey estate filings. If you have foreign beneficiaries, get specialized advice, because the withholding and treaty analysis is complex.

    Phase 5 – Collect, Liquidate, and Close

    ☐ Step 14. Collect assets and manage the estate
    Transfer titled assets into the estate’s name, collect receivables, manage investment accounts, maintain real property, and arrange for appraisals as needed. Pay ongoing expenses such as property taxes, insurance, and utilities from the estate account.

    ☐ Step 15. Handle retirement accounts and beneficiary-designated assets
    IRAs, 401(k) accounts, and similar accounts with named beneficiaries pass outside probate. The executor still needs to ensure that the beneficiary designations are honored and that the beneficiaries understand the distribution rules, including the ten-year rule enacted by the SECURE Act of 2019 and any required minimum distributions.

    ☐ Step 16. Document stepped-up basis for inherited assets
    Assets in the probate estate, and certain assets included in the taxable estate, receive a stepped-up cost basis to fair market value at the date of death. Proper documentation now prevents capital gains problems for the heirs later.

    ☐ Step 17. Close real estate transactions
    If real property is being sold, coordinate with the inheritance tax waiver process described in Step 10. Title companies in New Jersey will require either a Form 0-1 waiver or a self-executing Form L-9 affidavit before closing. Account for real estate commissions, transfer taxes, and attorney fees in the closing costs.

    Phase 6 – Final Accounting and Distribution

    ☐ Step 18. Prepare and present the formal estate accounting
    Prepare a complete accounting of all receipts, disbursements, gains, losses, taxes paid, and fees charged. Depending on the circumstances, this may need court approval as a formal accounting, or it may be handled by informal consent of all beneficiaries. This accounting is your protection as executor.

    ☐ Step 19. Pay all remaining obligations
    Taxes, liens, attorney fees, executor commissions allowed under N.J.S.A. 3B:18-14, and any other valid claims must be satisfied before distribution.

    New Jersey allows executors to be paid for their services. The commission is taxable income to the executor and must be reported on the executor’s own return. An executor who serves in a professional capacity may also receive a Form 1099-NEC from the estate. Many family executors waive the commission, particularly when they are also the primary heir and the commission would only convert an inheritance into taxable income.

    ☐ Step 20. Distribute net proceeds to heirs and close the estate
    Make final distributions only after all tax clearances are in hand, all creditor claims are resolved, and the accounting is approved. Get signed receipts and releases from each heir. File a final Form 56 to close out your fiduciary relationship.

    What to Expect

    Most estates require at least a year to close. Some take three to four years, especially when unique real estate is involved. The executor who moves through these phases deliberately, and who asks for help before a problem hardens into a dispute, almost always finishes faster than the one who tries to hurry.

    I am a CPA in Cumberland County and I handle these filings for South Jersey families and executors, including the inheritance tax returns and waivers that hold up so many closings. If you have been named executor and you are not sure where you stand, call me before the eight-month clock runs out. The conversation costs nothing and it is usually short.

    Tony Novak, CPA, MBA, MT
    SouthJersey.CPA

  • You don’t have to deal with business stress alone

    You don’t have to deal with business stress alone

    Diesel hit a record national average of $5.85 a gallon this week, up more than $2 since January. Farm bankruptcy filings nationally reached a six-year monthly high in April. South Jersey owners feel this before the headlines do, and most have no one to call who knows both the numbers and the law.
    Here is the pattern I see repeat. An owner who cannot cover payroll pays the net wages, holds back the withheld taxes, and plans to catch up next month. Those withheld dollars were never company money. The IRS can assess them personally against the owner under the trust fund recovery penalty, they survive bankruptcy, and a long enough pattern stops being treated as a cash-flow problem and starts being treated as intent.
    Every one of those stages has an exit, and the exit is widest at the beginning. Installment agreements, penalty relief, and a documented change of course are all still available to an owner who moves early. They narrow considerably for an owner who waits.
    This past week I heard stories from two local business owners who wasted money on expensive legal solutions that will not solve their problems. They did not want to talk with anyone about their business problems, and this led to poor, emotionally-driven actions that hurt rather than helped.
    If your business is under this kind of pressure, text me the words BUSINESS STRESS to 856-314-5625. Please send no details by text. I will call you, at no cost and with no obligation, and if what you describe belongs with an attorney first, a business change, debt restructuring, or tax resolution. If I think you should consider something else, I will tell you that too.

  • My two bits about the Atlantic City Electric FERC audit report

    In short, this could be much ado about nothing.

    As a former utility auditor, I know just a tiny bit more about utility audits than the average person. It’s such a complex topic that I do not claim to know much more.
    A few things to consider from the new audit report of Atlantic City Electric Company:

    • Social media and politicians seem to be pumping up citizens to expect meaningful refunds. That seems irresponsible, especially at this stage. There is no evidence to support that type of assertion. Unfortunately, we know that social media and politicians do not have to tell the truth.
    • Only two of the findings have refund recommendations, and the bound is small.
    • The little quantifiable information contained in audit report that is publicly available indicates that refunds will be small. I used an AI tool to extract the little numerical data in the report and extrapolate rough estimates across the customer base.
    • The total identified errors are a fraction of 1% of total billings.
    • The refund report is not part of the audit report. That will be calculated over coming months, and will surface publicly sometime in 2027.That’s just how this slow process moves.
    • The best we can do with the available information is estimate the range of the possible refund. No matter what we assume as estimates, the possible refund is small.
    • It is possible, perhaps even likely, that the average refund could work out to only a few dollars per customer. One estimate placed it under $1 per customer. In short, this could be much ado about nothing.
    • There is no assurance that the refund will reach retail customers (home accounts) at all.
    • The audit report is available online at https://elibrary.ferc.gov/eLibrary/# to confirm any of these statements.

    Aside from the audit report and surrounding discussion, I hope that our government officials are smart enough to see that the real affordability problem with electric power in South Jersey is not connected to the findings of this audit.

  • Bridgeton Partnering for Success Event tomorrow

    I’m grateful for the invitation to tomorrow’s business event in Bridgeton, hosted by the Bridgeton Area Chamber of Commerce, its Bridgeton Business Alliance Committee, and the City of Bridgeton UEZ. Chamber members are invited to set up a table for their own business, and I’m glad to accept.

    Plenty of people know they have a tax problem and don’t have anyone they trust to talk to about it. The notice sits in a drawer. The letters keep coming. That’s the conversation I hope to start with a few guests tomorrow, and it’s the reason I’m setting up a table at all.

    If that describes you, the specifics I handle are IRS notices, audits, back taxes, and collection letters, along with bookkeeping, payroll, estate filings, and business startup and wind-down.

    The Bridgeton business community, and especially its Hispanic business owners, has become a real niche service area for me. I enjoy working with these small business owners who make up the strong backbone of this community. Showing up in person builds the know, like, and trust factor that matters more than anything else in this work. I don’t do enough of these.

    If you miss the event and still want to talk something through, send a text or leave a message on my direct line at 856-314-5625. I’ll follow up personally within a day.

  • The Unexpected $10,000 Tax Bill

    I delivered bad news to a hardworking older couple today. The first time in their lives that they needed professional tax help was too late to make a real difference.

    They had spent years helping a friend in South Jersey under financial stress: a car repair, a heating bill, a medical bill, a roof. It added up to six figures. Nobody set out to lend that much. Nobody set out to lend anything. They were doing what people in this community have always done for each other. They show up.

    When she got sick, they took the harder job too. Power of attorney. Executor. The paperwork of dying, which is nobody’s idea of a favor.

    She died. The house sold. And the money that came back to them, the same money they had already spent on her, was taxed as an inheritance instead of treated as repayment of a loan.

    The tax bill was five figures. It did not have to exist.

    Why New Jersey saw it that way

    New Jersey repealed its estate tax in 2018, so people assume the state stopped taxing death. It did not. The inheritance tax is still here, and it does not care about the size of the estate. It cares who receives the money.

    Spouses, children, parents and grandchildren are exempt. Siblings and in-laws get a small exemption. Everyone else is Class D: friends, neighbors, cousins, the person who drove her to chemotherapy for two years. No exemption. Fifteen percent from the first dollar.

    The mistake was not in the will

    The easy version of this story blames whoever drafted the estate documents, and the easy version is wrong. A few casual words in the homemade power of attorney, added as a personal touch, turned a loan repayment into a taxable inheritance. I had to read it several times before I saw it.

    By then the money had already moved. Years of it. You cannot document a loan retroactively and expect a state auditor to accept it, and you should not ask an attorney to try. The failure happened at a kitchen table, the first time somebody wrote a check and said don’t worry about it. That is where the fifteen percent was decided.

    What would have worked

    One page. A promissory note, or a signed acknowledgment of indebtedness updated as the advances continued. Written when the money moved, not after. Or a power of attorney with express authority for the agent to reimburse documented advances, so the debt gets settled during life and none of it is an inheritance.

    Either costs almost nothing. Neither gets done, because asking a friend to sign a note feels like an accusation, and because nobody in that room is thinking about the Division of Taxation. I understand both. I still had to hand them the number.

    The point

    Nothing I could do in April was going to fix this. By the time a return reaches my desk, the decisions that drove the tax were made months or years earlier, by people who had no idea they were making tax decisions. They were being decent to a neighbor. The code has no category for that.

    The work worth paying for is the interruption. Someone in the room early enough to say: write this down, it will matter later.

    If you are supporting someone informally, or you have been named executor or agent for a friend, have the conversation now. Not at closing. Now, while the paperwork can still describe what is actually happening.

    The tax is not a penalty for helping. It is a penalty for not writing it down correctly.

  • Most Conservation Easements Are Not Tax Dodges

    Most Conservation Easements Are Not Tax Dodges

    On August 19 the IRS announced that it is starting up an Office of Conservation Easements. The release opens by recognizing the important role conservation and historic preservation easements can play. Buried in a procedural announcement about winding down a settlement initiative, that clause is worth pausing on, because somewhere over the last decade the tax profession stopped believing it.

    Say “conservation easement” in a room of accountants now and watch the temperature drop. The phrase has become shorthand for a tax scheme. That reaction is understandable but it is wrong, and the cost of it falls on people who never had anything to do with the bad deals that caused it.

    The category is much bigger than the enforcement docket

    Land trusts have conserved over 60 million acres of private land in this country, more acreage than all national parks combined. The overwhelming majority of that came from ordinary landowners: farm families, woodlot owners, people with a creek or a marsh edge who did not want to see it filled. They worked with accredited nonprofits that recorded the easement at the county level, and monitor it over time. I can see that conservation easements are extremely important to the sustainability of rural South Jersey, especially the bayshore where I live and invest.

    To my knowledge, the IRS enforcement wave never challenged the local private conservation easements in rural South Jersey. Instead, IRS targeted a narrow band of syndicated and promoted partnership transactions where the claimed deduction ran several times what the land cost. Congress then wrote a limit into the statute aimed at exactly that structure. The problem got a name, an enforcement program, and now an office.

    What it did not get is a clear public line between the promoted deals and everything else. So the whole category absorbed the reputation of the small worst slice of it.

    Around here, this is not theoretical

    Cumberland County NJ is one of the places where private land conservation actually does the work that government cannot afford to do outright.

    We have marsh and buffer land along the Delaware Bay, Maurice River and the Cohansey River that will never be developable and is not worth much on the open market, but is worth a great deal ecologically. We have farms with soils good enough that losing them to warehouses would be permanent. We have upland edges that determine whether the marsh behind them can migrate as the water rises, which is the single most consequential land question on this bayshore and almost nobody is discussing it in those terms.

    Some of that gets protected through fee purchase: Green Acres, Blue Acres, county open space. Some through federal wetland reserve easements. Some through the state farmland preservation program. And some through donated conservation easements to accredited land trusts, including organizations that have been working in this county for decades.

    Those are different tools with different tax consequences. Lumping them together under a suspicion inherited from a promoted-deal scandal is not conservatism. It is a failure to read the file.

    What the reputation actually costs

    Here is the part I want tax practitioners to consider. I doubt many of us actually believe every conservation easement is abusive. What happened was quieter than that. Reporting obligations, preparer penalty exposure, and the sheer aggravation of the subject made it expensive to touch. So practitioners like me mostly stopped raising it as a planning option at all.

    That is avoidance by liability management, not by professional judgment. And the person who pays for it is a landowner in Downe Township (where I live) or Greenwich or Stow Creek who had a decision in front of her, never learned the option existed, and sold to whoever showed up.

    If you own land here and are thinking about this

    Start with the land trust, not with the deduction. If a reputable, accredited organization does not want the easement, that answers a question. Get a qualified appraisal from an appraiser who has actually done conservation work, not a general commercial appraiser. Have a lawyer read the deed language closely, because legitimate donors have lost entire deductions over a single clause about what happens if the easement is ever extinguished.

    And know this one: if you are granting the easement to obtain a permit or a development approval, you got something in return, and the charitable deduction shrinks or disappears. Real conservation value, no write-off. That trips up more honest people around here than any promoted scheme ever did.

    The tax benefit should be the last question, not the first. That has always been the difference between a conservation easement and a tax product. It is not a hard distinction to see. We just stopped looking.

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