The discovery of a shoebox full of large bills found when cleaning out a parent’s home is a mixed blessing. Often, the first response is, let’s not include it in the estate. But if the amount is as much as $200,000, that’s a lot of cash to hide. Even if the estate is already paying state and federal estate taxes, you still have to include that cash in the value of the estate and you still have to pay taxes on it.
NJ 101.5’s post, “Hiding cash for estate tax purposes,” says—as you would guess—that the cash must be included as part of the estate for purposes of calculating estate and inheritance tax.
Ya, but … how will the government know if I don’t include it?
Well, it might be a crime to intentionally under-report assets on a tax return.
Even if there’s really no criminal intent, there’s interest assessed on any underpayment of taxes owed at a rate of 10% per year.
In New Jersey, the tax is due nine months after death for state estate tax, and it is due eight months after death in the case of New Jersey inheritance tax. The interest begins to accrue once those time frames have passed.
Another thing to consider is the fact that it’s also a possibility that the failure to disclose the $200,000 could be uncovered in an audit.
The challenge is two-fold. Not every estate and inheritance tax filed gets audited, but if your estate is audited, the auditor might request statements from the accounts. Let’s say the person withdrew a lot of money just before passing and that was the source of the shoebox of cash. Tax auditors have seen every trick in the book, so they are not likely to turn a blind eye to anything. Best policy? Be honest and include the cash in the estate. You’ll sleep better.
Reference: NJ 101.5 (October 21, 2016) “Hiding cash for estate tax purposes”