A New Jersey homeowner’s acceptance of a $90,000 inheritance from his late sister’s estate in 2014 resulted in loss of his eligibility for the Homestead Rebate, because the inheritance was countable as “income.” . Although receipt of an inheritance by an estate beneficiary is not “income” under NJ or federal income tax regulations, it is still considered income under the NJ Homestead Rebate Act.
The Superior Court, Appellate Division, affirmed the decision of the NJ Division of Taxation in an unpublished decision called Burns v. Dir., Div. of Taxation, Tax Ct. (DeAlmeida, J.T.C.), case # 35-5-8269. Evidently, the homeowner had not wanted to receive the distribution from the Estate and decided he would share it with the family. However, instead of Disclaiming the assets — which would have caused the money to pass as if he had predeceased his sister — he received the distribution in 2014, placed it into his bank account, and then in 2015, gave away $78,000 of this money to other relatives by issuing checks from the account.
The Homestead Rebate program uses a definition of income that is different than you find in the income tax code. It is similar to what you find in the PAAD program (Prescription Assistance for the Aged and Disabled). For 2014, the income limit to maintain base year taxes was $85,553 and the income limit to receive a reimbursement was $70,000. In the case I’m discussing, the homeowner’s receipt and use of the $90,000 put him over the limit for the entire program, so he could get no rebate.
In my experience, it’s not uncommon for people to choose to share an inheritance with others. However, there are many laws that impact on that decision, and as we see here, the decision can have an adverse effect on the nice donor. Careful consideration with an attorney of available strategies could have prevented this problem, or at least forewarned the homeowner of what was to come.
Call us for legal advice on entitlement to different government benefit programs, and for estate & trust administration advice and service … 732-382-6070