Selling a house when the owner is dead is more complicated than when the owner is alive. However, it is not a complete delay for sale.
In New Jersey, there is an estate tax and an inheritance tax when a person dies owning property. Estate tax is collected when the net worth of the estate (assets minus liabilities) is greater than $675,000. In northern New Jersey, where I practice law, it’s easy to hit that threshold: your home equity, a retirement account and your mutual funds, and many people may have to pay estate taxes. Inheritance tax applies to certain classes of more remote relatives and friends. Direct descendants (children and grandchildren) and background (parents and grandparents) are exempt from inheritance tax. New Jersey has a lien on all property located in New Jersey when someone dies. You can release the link by submitting the corresponding documentation. The release of the bond is called a “tax exemption.” It tells the executor of the estate how much estate tax must be paid and must be paid to clear title to all property.
When real property is owned by both a husband and wife, and one spouse dies, the surviving spouse now owns the property outright. There is no need to start probate proceedings if the surviving spouse wishes to sell the home, and it may not be necessary to apply for tax breaks.
When the surviving spouse dies and the surviving spouse’s children or siblings want to sell the home, the paperwork is more complicated. If there is a last will and testament, the will must be filed with the Probate Court and an executor of the estate is appointed. The executor obtains letters of trust from the court and this gives the executor legal authority to act as the seller of the house. If there is no will, one of the heirs to the estate must file with the Probate Court to request Letters of Administration. That person (called the estate manager) gets the legal authority to sell the house.
Once an executor or administrator is appointed, the house can be put up for sale on the market. He is only the executor or administrator who will sign the sales contract and deed on behalf of the estate (the estate is the actual seller). The other heirs have no authority to act in any way as the seller. To obtain a tax exemption to release the lien the state of New Jersey has on the house (as well as all other assets in the estate), the executor or administrator will apply for it. The filing can take place up to nine (9) months after the death of the homeowner and it can take a few weeks after that to get a decision on how much tax, if any. Do the heirs have to wait nine (9) months to sell the house?
When selling real estate, the seller promises to give “clean title” to the buyer. The tax link is a cloud in the clear title. To pass a clean title, title insurance companies will agree to insure the clean title if the executor or administrator will hold a sum of money on escrow until inheritance and succession taxes are paid. The title company that insures the title decides how much money will be retained. Even if the title company insists on keeping a substantial amount on escrow, it allows the sale to go through in a timely manner and the heirs can get a partial distribution of the estate.
It is recommended that the executor or administrator retain a real estate attorney to provide advice during the probate process and an experienced real estate attorney to work with the real estate attorney so that real estate issues and real estate issues are resolved together.