Selling a house when the owner has died

Selling a house when the owner has died is more complicated than when the owner is still alive. It’s not a complete barrier to sales, however.

In New Jersey there is an estate tax and an inheritance tax when a person who owns property dies. The estate tax is levied when the net value of the estate (assets less liabilities) exceeds $675,000. In northern New Jersey, where I practice law, reaching that threshold is easy—the equity in your home, a retirement account, and your mutual funds, and many people may have estate taxes to pay. Inheritance tax applies to certain classes of more distant relatives and to friends. Direct descendants (children and grandchildren) and ancestors (parents and grandparents) are exempt from inheritance tax. New Jersey has a lien on all New Jersey property if someone dies. You can release the lien by submitting the appropriate documentation. The release of the lien is referred to as a “tax exemption”. It tells the executor how much estate tax is due and must be paid in order to erase title to the entire estate.

When real estate is owned by both a husband and wife and one spouse dies, the surviving spouse now owns the property in full. Probate proceedings do not need to be initiated if the surviving spouse wishes to sell the home, and no tax exemptions need to be sought.

If the surviving spouse dies and the surviving spouse’s children or siblings wish to sell the home, the procedures are more complicated. If there is a will, the will must be filed with the Surrogate’s Court and an executor will be appointed. The executor receives executors from the court and this gives him the legal authority to act as the seller of the home. If there is no will, one of the heirs to the estate must apply to the Surrogate’s Court for a letter of comfort. This person (called the executor of the estate) is given the legal authority to sell the home.

Once an executor or administrator is appointed, the home can be put up for sale. Only the executor or administrator signs the deed of sale and deed on behalf of the estate (the estate is the actual seller). The other heirs are not authorized to act as sellers in any way. In order to obtain the tax exemption to release the lien that the State of New Jersey has on the home (and all other assets of the estate), the executor or administrator will request it. Filing can be made up to nine (9) months after the homeowner’s death, and it may take several weeks thereafter to make a determination as to how much tax is due. Do the heirs have to wait nine (9) months to sell the house?

When selling real estate, the seller promises to give the buyer “clear ownership”. The tax lien is a cloud on the clear title. In order to deliver the unique title, the title insurance companies agree to insure the unique title when the executor or administrator holds a sum of money in trust until the estate and inheritance taxes are paid. The title company that insures the title decides how much money is withheld. Even if the title company insists that a substantial amount be placed in escrow, it allows for a timely sale and heirs may receive a partial distribution from the estate.

It is recommended that the executor or administrator retain a probate attorney to advise during the probate process and that an experienced real estate attorney work with the probate attorney to resolve the real estate issues and the probate issues together.