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LegalGems, Attorney
Category: Estate Law
Satisfied Customers: 10337
Experience:  Private Practice; Elder Law Attorney; Estate Planning; Attorney Mentor
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Ok there was a 401k with 5 beneficiaries named on it. The lawyer

Customer Question

ok there was a 401k with 5 beneficiaries named on it. The lawyer that is handling the estate said she had to pay the tax on the 401ks even though they didn't pass through the will. This is a NJ heritance tax form she placed all the 401k money there and paid tax on it not even knowing if anyone rolled it over or not.
Now she tells me that although the will says all the estate inheritance and death taxes where to be paid the 401k's did not pass through the will. She was trying to get the financial company to take it out of the individual accounts that were being paid out.
So then why did she pay extra tax on them to the state of NJ. She talks in circles it is hard to understand her
Submitted: 1 year ago.
Category: Estate Law
Expert:  LegalGems replied 1 year ago.
Thanks for your patience as I prepared a response. NJ is one of only a handful of states that collect both an inheritance tax, and an estate tax, hence the confusion. So an estate tax looks to the gross value of the estate, and this includes all assets owned by decedent, over $675,000 (the tax for assets over that amount is approximately 10%). That tax is waived if the spouse is the beneficiary. This looks to all property, including 401ks, transfer on death deeds, etc. The inheritance tax is to be paid on bequests, and is codified at 54:34 et seq. Basically the inheritance tax depends on how the heir is related to the decedent ("class") and the tax rate varies accordingly. The heir is responsible for paying the tax unless the estate planning document sets aside additional funds to take care of that. 401Ks are also taxed, if the owner of the account dies before having the right to withdraw penalty free from the plan (ie before age 59.5) and has a named beneficiary on the account. Here is some additional information:
Expert:  LegalGems replied 1 year ago.
Here is the statute that also exempts 401K transfers to surviving spouses:j. The value of any pension, annuity, retirement allowance or return of contributions, regardless of the source, which is a direct result of the decedent's employment under a qualified plan as defined by section 401(a), (b) and (c) or 2039(c) of the Internal Revenue Code, payable to a surviving spouse, or a domestic partner as defined in section 3 of P.L.2003, c.246 (C.26:8A-3), and not otherwise exempted pursuant to this section or other law of the State of New Jersey.
Expert:  LegalGems replied 1 year ago.
Thank you for using Just Answer.I hope the information provided was useful.Here is a link to the bar association's legal referral site: you have further questions please post here; otherwise kindly --- Rate Positively--- so the site credits me for assisting you.Thank you and take care!