My own layman’s guide, born of my own experience and observations – Part 2
Terminology. Jargon. Legalese. Ordinary words with “special” meaning. If you are working with an estate, it will help to know the vocabulary.
Estate – While you are alive, you, personally own all of your “stuff.” The minute you pass away, all of your “stuff” immediately belongs to your estate. In other words, upon your death, the immediate, (albeit temporary) owner of your “stuff” … is your estate. In this context, “stuff” includes tangible assets, financial assets, real estate, debts, etc.
Will – Legal document that basically tells the world how to dispose of your “stuff.”
Something every adult ought to have. Yes: every adult. And, yes, while it’s probably more likely that a 99-year-old great granny will pass away than an 18-year-old high school honor student, both need wills.
It is not mandatory that a will be written by a lawyer, but genuine legal advice is always a good idea.
If you insist on doing it yourself, get it witnessed. A document written on the back of an envelope can have all the wherewiths and heretofors imaginable, but if it is not properly witnessed, it probably won’t be acceptable in NJ. Most banks have notary services for their clients.
Heir – Person legally entitled to your stuff, upon your death. If you have a will, you get to determine who it is. If you do not have a will, NJ (and most other states) will defer to your next of kin.
Next of kin – Your closest living blood relative. Especially important if you do not have a will. In this order: spouse, children, parents, siblings, grandchildren, grandparents, nieces/nephews, aunts/uncles, etc. Within any group, priority is given by age.
Disinherited Person – Very sad, but best explained in context. Let’s say I have an alcoholic brother who lives on the streets. My mother might decide my alcoholic brother should get nothing because she is fairly confident he will just drink it away, while I might use the money wisely. In her will, it would be a good idea for her to specifically recognize my brother (her son,) and that he gets nothing. No reasons are necessary. Check with your attorney! See also, Contest.
Executor/Executrix – The lucky person who is in charge of taking care of your estate. When you write a will, you get to pick this person. This person is expected to follow the instructions of your will, pay your last bills, liquidate your assets, and distribute your “stuff.”
Probate – This is a process to establish the validity of a will.
Surrogate’s Office – In NJ, this is where you go to establish the validity of a will. Every county has a Surrogate. The office is usually at the county office complex. Take a copy of the will. Take a checkbook. (Yes, there are fees.) Take tissues.
Death Certificate – Legal document stating that a person has died. It probably includes much additional information, and can be very long, and on special paper. It frequently has a raised seal. A death certificate is sometimes required in order to liquidate certain assets. Generally, you can get them from your county office, but it is easier to just order them through your funeral director. Yes, there is a fee.
Short Certificate – This is a legal document showing the decedent’s name, date of death, and the name of the person authorized to handle the affairs of the estate. The Surrogate’s office will provide as many of these as you like…for yet another small fee. It is easier to order more than you think you need than to go back for one more.
Testate – If a person dies with a valid will in place, it is said that the person died testate.
Intestate – If a person dies without a will, it is said that the person died intestate.
Administrator/Administratrix – If you don’t have a will, NJ will appoint someone to this position. This person does everything the executor/executrix would have done. With a small estate, or few heirs, this might be handled through the Surrogate’s office. With a large estate, or a contentious estate, it might be accomplished by a court proceeding, in which case, (in my opinion,) there ought to be lawyers.
Bond – Essentially, this is an insurance policy on the assets of the estate. It could cost thousands of dollars, and it has to be renewed every 12 months until the estate is closed. It can get very complicated. From what I have seen, a good will states that no bond is necessary. When there is no will, the Surrogate’s office will tell you how much of a bond you need to acquire. The price of the bond can depend on the size of the estate as well as the credit rating of the administrator/administratrix.
Contest – This is the process by which a person challenges the handling of the estate and/or the distribution of assets. Let’s say my mother did not specifically mention my supposed alcoholic brother and did not specifically give him nothing. In a moment of sobriety, he might pull himself together and find a lawyer to fight the will. A battle of attorneys will begin, and it will be costly.
Taxes – Income tax is not to be confused with the so-called death taxes.
Income tax is on income produced by the assets of the estate. An example would be interest on a million dollar savings account, or gain from the sale of the vacation home. As long as the estate remains open, it is appropriate to file income tax for the estate. Form 1041 is due on the traditional Tax Day, April 15, adjusted as necessary for weekends and holidays.
The so-called death taxes are on the underlying income-producing assets, that is, the aforementioned actual million dollars in the savings account, or the actual vacation home. The so-called death taxes are only filed once. In NJ, the forms are due 8 months after the date of death, and in this case, the IRS follows the state, and so Federal Form 706 is also due 8 months after the date of death for NJ estates.