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The accountant for our estate claims that the nj inheritance

The accountant for our estate...

The accountant for our estate claims that the nj inheritance tax is computed on the two classes of benificiaries (C & D in our case) and paid immediately to release funds, but becomes a deduction from the gross estate BEFORE any distribution. The net distribution to C and D beneficiaries being equal and in effect making it a tax on the estate and not the beneficiary. True? also they claim requesting a refund of the excess tax paid would generate a state audit.  My way of computing the tax would be to apply the 11% and 15% rates to the final amount to be distributed to each beneficiary and only the net amount actually distributed.

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5/2/2013
Lev
Lev, Tax Advisor
Category: Tax
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LEV :

Hi and welcome to Just Answer!
The net distribution to C and D beneficiaries being equal and in effect making it a tax on the estate and not the beneficiary. True?
That is correct. A Transfer Inheritance Tax Return must be filed and the tax paid on the transfer of real and personal property within eight months after the death. Filing tax return and remitting the tax is a responsibility of the estate.


See for reference - http://www.state.nj.us/treasury/taxation/pdf/other_forms/inheritance/itrbk.pdf
also they claim requesting a refund of the excess tax paid would generate a state audit.
That might be but is not a necessarily a trigger for the audit.


When the tax on a transfer of property cannot be definitely determined until the occurrence of contingencies, the tax liability may be immediately adjusted by the payment of a compromise tax. The compromise tax is the amount of tax that the Branch will accept in satisfaction of a tax liability which, if not settled in this manner, will be held in abeyance for an indefinite period.


A compromise tax on the contingent portion of an estate may be computed by the estate representative and reported on the inheritance tax return. When a compromise tax is reported on the return, a rider should be attached setting forth the computations and basis for the amount of compromise tax reported.
My way of computing the tax would be to apply the 11% and 15% rates to the final amount to be distributed to each beneficiary and only the net amount actually distributed.
That is correct.
See details about how to determine the compromise tax and examples in this publication - http://www.state.nj.us/treasury/taxation/pdf/CompromiseInheritanceTaxGuide.pdf

Customer:

I'm not clear about your response. The accountants way of computing the "compromise tax" and then deducting it from the net estate prior to distribution, results in C and D class beneficiaries who have the same share in the estate,also receiving the same amount of distribution, even though one is taxed at 15% and the other is taxed at 11%. My computation results in a different distribution because one pays more taxe than the other.

LEV :

1. the "compromise tax" are paid by the estate - not by beneficiaries.
2. the "compromise tax" is not deducted from the net estate but credited toward actual estate's tax liability of the final return.
3. The executor should decide on distribution proportions - and should apply inheritance tax separately to each beneficiary in computation of net distribution based on the class of each beneficiary.

Lev
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