It’s not that uncommon for an elderly relative to pass away, and for younger family members to be tasked with cleaning out her home. That can take some time.
If the siblings started cleaning up the place but it took a year to sell the home, there may be some tax issues.
Because of the delay, perhaps a sibling didn’t pay the inheritance tax on time, because the home wasn't yet sold. The taxes were finally paid, with interest, but the question arises, could the sister have used a “guesstimate” for the value of the home to pay the inheritance tax on time? Or could she have asked for an extension or an amended return?
nj.com’s recent article, “Inheritance taxes were paid late, with interest. Can we get a redo?” explains that an extension of time to file the return can be obtained for up to four months with another two-month extension without explanation. However, the taxes must still be paid. If not, interest accrues at the rate of 10% per annum.
Interest payments could’ve been avoided, by getting a market analysis from a real estate agent to assess the value of the home. Each of the beneficiaries could have then paid their estimated share of the tax from their personal funds, assuming there were not enough liquid assets in the estate to pay the tax.
If the beneficiaries were not willing to do so, and there weren’t enough liquid funds in the estate to pay the tax until the house was sold, it may be that a fiduciary had no other option but to let interest accrue, until funds were available to pay the tax.
Also note that not every expense that’s paid by an estate, is available as a deduction on the inheritance tax return. However, if the deductions that are available weren’t taken on the original return, an amended return can be filed prior to a Notice of Assessment or other such notice being received from the Division of Taxation. That will close the matter.
Appeals and applications for refunds at that point may be made. However, limited time periods and certain procedures must be followed.
An estate planning attorney would be able assist with preparing and filing this type of return and reduce the risk of the taxing authority auditing the estate returns. The cost of working with an attorney would no doubt be less than the time and expense of handling this aspect of the estate incorrectly and racking up taxes and penalties.
Reference: nj.com (April 24, 2019) “Inheritance taxes were paid late, with interest. Can we get a redo?”