New Jersey’s mysterious Form L-4

If you happen to know what an “L-4” is in New Jersey, consider yourself in a very select company, because I believe very few in the state have heard of it.

Form L-4 is the Department of Treasury’s preliminary Transfer Inheritance and/or Estate Tax return.

New Jersey is one of the few states that has an Inheritance Tax. If someone close to you passes away, New Jersey wants its cut. This is NOT an estate tax, and it is NOT the federal estate tax—the one Bush politicks so much, but virtually no families ever pay.

The New Jersey Inheritance Tax creates four or five classes of heirs. “Class A” are people such as a mother or father, son, daughter, granddaughter. I believe certain in-laws may be in there.

“Class B” existed at one time, but is gone. “Class C” are brothers and sisters. “Class D” is everyone else. I think there is a “Class E” for charities.

The good news is, Class A beneficiaries nowadays get a complete exemption from the Inheritance Tax. There may be some New Jersey Estate Tax if the estate is large enough. But no Inheritance Tax.

If you are a Class C beneficiary, however, the state only exempts $25,000. Then it starts taxing you, starting at 11%. For Class D beneficiaries, it starts at 15%, no exemptions.

Where does Form L-4 come in?

If you are not a “Class A” beneficiary, the fact that inheritance taxes are due means that there is a lien on real and personal property in the estate. (Why personal property—cash, stocks, bonds, furniture—is not also called real property is beyond me. It’s very real enough!)

If there is a house in the estate, and the Inheritance Tax has not been paid yet, the house has a lien on it. You basically need permission from the Treasury Department to sell it, since they want their cut (the state’s cut). And to do that, you have settle up the estate, in a back-of-the-envelope sort of fashion. You must present an accounting of what the estate is looking like NOW, before the final inheritance tax return is due.

You give this flash report, you can get the state’s assent to sell the property. That is Form L-4.

It works for frozen bank accounts, too.

Nowhere is it made clear on Form L-4, what its plain English purpose is. You basically have to know that you need to fill in and file it, in order for it to be relevant to you. And that only happens if you are the sibling heir (or other non-lineal heir) of someone who passed away.

How often does that happen in New Jersey? Got me.

But it would be nice if someone in Trenton made clear, the need for Form L-4 and what it is all about.

You don’t want people to be surprised about these things. And you don’t want to create secrets about taxes, that only estate lawyers would know . . .

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