Selling a house when the owner is dead is more complicated than when the owner is still alive. However, it is not a complete robbery to sell.
In New Jersey, there is a property tax and an inheritance tax when a person dies from owning property. Estate taxes are collected when the net worth of the estate (assets minus liabilities) is more than $675,000. In northern New Jersey, where I practice law, it’s easy to hit that threshold — your home equity, retirement accounts, and mutual funds and lots of people may have to pay land taxes. Inheritance tax applies to certain classes of more distant relatives and friends. Direct descendants (children and grandchildren) and predecessors (parents and grandparents) are exempt from inheritance tax. New Jersey has liens on all property located in New Jersey when a person dies. You can get liens released by filing the proper documents. Waivers of liens are called “tax waivers”. It tells the estate manager how much land tax is due and must be paid to remove title on all properties.
When real estate is owned by a husband and wife and one spouse dies, the surviving spouse now owns the property directly. The probate process does not need to be initiated if the surviving spouse wishes to sell the home and tax breaks may not need to be applied for.
When the surviving spouse dies and the surviving spouse’s children or siblings wish to sell the house, the procedure is more complicated. If there is a last will and testament, the will must be submitted to the Alternate Court and an executor appointed. The executor obtains a Will from the Court and this gives the executor legal authority to act as the seller of the house. If there is no will, one of the heirs of the inheritance must apply to the Alternate Court to request an Administrative Letter. That person (called the estate administrator) gets the legal authority to sell the house.
Once an executor or administrator is appointed, the house can be marketed for sale. Only the executor or administrator will sign the sales contract and deed in the name of the inheritance (the estate is the actual seller). The other heirs do not have the authority to act in any way as a seller. In order to obtain a tax waiver for relinquishing any liens the State of New Jersey has on the home (as well as all other property of the estate), the executor or administrator will apply for it. Filings can be made up to nine (9) months after the homeowner dies and it may take several weeks thereafter to get a decision on how much tax, if any, should be paid. Do the heirs have to wait nine (9) months to sell the house?
When selling real property, the seller promises to give the buyer “clear rights”. Tax liens are a cloud above the obvious title. In order to provide clear title, the property rights insurance company will agree to guarantee clear title if the executor or administrator will hold a sum of money in escrow until estate and inheritance taxes are paid. How much money to hold is determined by the title company that insures the title. Even if the title company insists on a large amount to be kept in escrow, it allows the sale to be made on time, and the heirs can get a portion of the distribution from the estate.
It is recommended that the executor or administrator hire a real estate attorney to provide advice through the will process and an experienced real estate attorney to work with the real estate attorney so that real estate issues and estate issues are resolved together.
