Selling a house when the owner has died is more complicated than when the owner is alive. However, it is not a complete holdup to selling.
In New Jersey, there is an estate tax and an inheritance tax when a person dies owning property. The estate tax is collected when the net worth of the estate (assets minus liabilities) is more than $675,000. In northern New Jersey, where I practice law, it is easy to get to that threshold – the equity in your home, a retirement account, and your mutual funds and many people may have to pay estate tax. The inheritance tax applies to certain classes of more remote relatives and to friends. Direct descendants (children and grandchildren) and antecedents (parents and grandparents) are exempt from inheritance taxes. New Jersey has a lien on all property located in New Jersey when someone dies. You can get the lien released by filing the proper paperwork. The release of lien is called a “tax waiver.” It tells the Executor of the estate how much estate tax is due and must be paid to clear the title on all property.
When real estate is owned by both a husband and wife and one spouse dies, the surviving spouse now owns the property outright. A probate proceeding does not need to be started if the surviving spouse wishes to sell the house and tax waivers may not need to be applied for.
When the surviving spouse dies and the children or siblings of the surviving spouse wish to sell the house, the procedures are more complicated. If there is a last will and testament, the will must be filed with the Surrogate’s Court and an executor of the estate is appointed. The executor gets Letters Testamentary 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 of the estate must make a filing with the Surrogate’s Court to request Letters of Administration. That person (called the administrator of the estate) gets the legal authority to sell the house.
Once an executor or administrator is appointed, the house can be put on the market for sale. It is only the executor or administrator who will sign the sales contract and the 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. In order to get the tax waiver to release the lien that the State of New Jersey has on the house (as well as all of the other property of the estate), the executor or administrator will apply for it. The filing can take place up to nine (9) months after the home owner has died and it may take a few weeks thereafter to get the decision of how much tax, if any is due. Do the heirs have to wait nine (9) months to sell the house?
When selling real property, the seller promises to give “clear title” to the buyer. The tax lien is a cloud on the clear title. In order to pass clear title, the title insurance companies will agree to insure the clear title if the executor or administrator will hold a sum of money in escrow until the estate and inheritance taxes are paid. How much money to be held back is decided by the title company who is insuring the title. Even if the title company insists on a substantial amount to be held in escrow, it allows the sale to go through on a timely basis, and the heirs may get a partial distribution from the estate.
It is advised that the executor or administrator hire an estate attorney to give advice through the probate process and an experienced real estate lawyer to work with the estate lawyer so that the real estate issues and the estate issues are solved together.