Ask the Probate Judge—Taxes & Real Property in Probate Court
Rudd, appeared January 8, 2004, Albuquerque Journal, Business Outlook
Reprinted with permission
Editor's note: This column may not be quoted or reproduced in whole or part without express written permission of the author.
Q: Are estate tax and inheritance tax the same?
Well, I thought so, but I was wrong.
According to my tax attorney friends, inheritance tax is different than estate tax. An inheritance tax, usually a percentage of the amount inherited, is levied on the beneficiaries of a decedent's estate. Each beneficiary must pay his or her own inheritance taxes.
An estate tax is a tax on all of a decedent's assets before they are distributed to the beneficiaries. The estate pays this tax to both the IRS and the state in which the decedent lived. The personal representative fills out an estate tax return and pays the tax out of estate funds. The beneficiaries are only liable for the tax if the personal representative fails to pay it.
Now for the good news: several states have an inheritance tax, but New Mexico does not. New Mexico has only estate tax. Under New Mexico's current law, if no federal estate tax is due, then no state estate tax is due.
There is no federal inheritance tax, only federal estate tax. If you are domiciled in New Mexico at your death and only own property here, you should not worry about inheritance tax.
Most readers need not worry about estate taxes either. Under current tax law, in 2004 and 2005 the first $1.5 million of an individual's estate is exempt from estate tax. With proper tax planning, married couples can pass up to $3 million with no federal or state estate tax liability.
Q: A lawyer told me that if a person's estate contains real property, the estate must be probated in District Court, not Probate Court. Yet I have heard you speak and say that you can probate both real and personal property in the Probate Court. Which is correct?
Congratulations, you have identified "Myth #12: You cannot probate real property in Probate Court." This is untrue. No state law requires a formal closing in District Court for estates that contain real property. Attorneys, pro se applicants, and title companies regularly use informal probate proceedings in the Probate Court for estates with real property.
Examples of real property include houses, land, and ranches. Once a personal representative is appointed by either the Probate Court or the District Court, that person has full power to sell and transfer title to the decedent's real property located in New Mexico.
The personal representative signs a new deed that passes the real property from the estate to the beneficiaries or new owner. Having an attorney or title company prepare this deed should insure that valid title is passed. The personal representative's deed must be recorded in the county clerk's office in the county where the property is located. Recording the death certificate of the decedent in every county where real property is located is also necessary.
An exception exists to probating real property in the Probate Court. If the title to or value of real property is disputed, only the District Court in a formal probate proceeding has jurisdiction to resolve the dispute.
© 2004, Merri Rudd & Albuquerque Journal, All Rights Reserved