Saturday, December 9, 2017

Additional State Income Tax Exemption for New Jersey Veterans

Additional State Income Tax Exemption for New Jersey Veterans

Welcome news: the State of New Jersey, Department of the Treasury, Division of Taxation has announced that veterans honorably discharged or released under honorable circumstances from active duty in the Armed Forces of the United States by the last day of the tax year will be able to claim an additional $3,000.00 exemption on their New Jersey Gross Income Tax returns commencing with tax year 2017.  The exemption applies to all such veterans not just those separating from service in 2017, and applies for tax years going forward, not just for 2017.  A copy of Form DD-214, Certificate of Release or Discharge from Active Duty, must be filed the first time the exemption is being claimed. The form does not need to be provided each year.  The United States National Archives and Records Administration can assist with obtaining a copy of the DD-214.  You can certify for the exemption by sending a copy of your DD-214 and Veteran Exemption Submission Form before you file, which may help process your return faster.  A spouse (or civil union partner) is also eligible for an exemption if he/she is a veteran who was honorably discharged or released under honorable circumstances and a joint return is being filed. This exemption is in addition to any other exemptions the veteran taxpayer is entitled to claim and is available on both resident and nonresident returns. The exemption, however, can not be claimed for a domestic partner or for dependents.

To read Division of Taxation announcement see:

For copy of Veteran Exemption Submission Form:

For obtaining copy of your Form DD-214:

Friday, December 1, 2017

Estates and Beneficiaries: Outstanding Child Support and other Obligations

Estates and Beneficiaries:  Outstanding Child Support and other Obligations

One of the duties of an Executor of an estate, before making distributions to the beneficiaries of the estate, is to conduct a child support search.  That is, a search to determine whether the beneficiary who is about to receive a distribution from the estate, owes any back child support obligation.  Our experience has been that in most instances the search comes back clean and the distribution, assuming the appropriate Receipt and Refunding Bond has been executed, may proceed.  If, however, there is an outstanding child support obligation, then it must be dealt with, which typically involves having to contact the appropriate probation department through which the child support payments were to have been made, and the inheritance being used towards satisfying the outstanding amount owing.  Should the Executor fail to conduct the search, and there be an outstanding obligation, there is personal exposure for the Executor, as well as for the attorney for the estate. 

The issue of outstanding child support obligations also arises in connection with decedent himself or herself. That is, an outstanding child support obligation may be a debt of the estate itself.  If the estate is solvent, this is going to be one of the debts to which the Executor will need to attend.  If the estate is insolvent, payment of the obligation, as well all of the other estate debts, becomes problematic, in that, by its nature, the insolvent estate has insufficient assets with which to pay all of its debts.  In the Wills which I draft, if there are any specific devises under the Will or any general pecuniary devises (i.e., dollar amount devises) in the Will, I frequently will include what is called an “abatement clause” which addresses how assets of the probate estate are to be consumed in paying debts if the estate assets are insufficient.  

The New Jersey Probate Code itself contains a statute which addresses the order of priority for the payment of estate debts. It is set out under N.J.S.A. 3B:22-2.  To be noted, reasonable funeral expenses are prioritized first, and then administration expenses of the estate are prioritized second. After that, third, are amounts, if any, which may be owing to the Office of the Public Guardian for Elderly Adults, followed fourth by debts and taxes with preference under federal and state laws.  Arguably an outstanding child support obligation would fall under the fourth category, as would a Medicaid recovery claim.  Fifth are claims for reasonable medical and hospital expenses of the last illness of the decedent, including compensation of persons attending the decedent.  Sixth are judgments entered against the decedent according to the priorities of their entries respectively. Last are all other claims.  Thus, the unsecured creditor is at the bottom of the pile, yet Executors frequently make the mistake of paying them first.

Note that N.J.S.A. 3B:22-2 further provides that,

“No preference shall be given in the payment of any claim over any other claim of the same class, and a claim due and payable shall not be entitled to a preference over claims not due. The commencement of an action against the personal representative for the recovery of a debt or claim or the entry of a judgment thereon against the personal representative shall not entitle such debt or claim to preference over others of the same class.”

If there is an outstanding child support obligation, it can be expected that the Office of Child Support Services may try to levy against, for example, bank accounts which the decedent owned.  Should that happen, the estate should timely contest the attempted levy (which would be seeking to grab the bank funds), and assert that such action would violate the aforementioned New Jersey statute on the order of priority for the payment of the estate’s debts.  We have successfully made that argument.  The funds which would have been levied against, can then, (assuming the account would pass through the estate), make their way into the pool of probate assets for use by the Executor in paying the aggregate of the estate obligations in the order of priority set out in the statute as discussed above. 

Also to be noted, the Executor should be aware of the Multiple Party Deposit Account Act, pursuant to which it may be possible for the Executor to claw back into the probate estate monies in bank accounts in which the decedent had an ownership interest but because of the titling on the account would have passed outside the probate estate directly to one or more joint owners or beneficiaries.  We have had to use that statute in a number of estates over the years. 

Note that an insolvent estate may give rise to the need for an insolvency proceeding in the Superior Court, Chancery Division – Probate Part, in the county where the Will was probated or the intestate administration commenced. 

The particular facts of any estate vary, thus the Executor should consult with legal counsel before embarking upon the payment of the estate debts, and as indicated above, the Executor must be mindful of unpaid child support obligations of the both the decedent and the beneficiaries of the estate. Very early on in the estate administration the Executor is going to need to get a handle on the estate debts and what assets are available to pay off those debts.