New Jersey has both an inheritance tax and a state estate tax. New Jersey is one of the few states that collects both. Inheritance tax is levied on persons who receive property from an estate upon the death of the transferring person and is implemented by each individual state. The inheritance tax will vary according to the location in which the estate holder died.
Estate taxes are paid on your estate after you die but only if your estate is worth more than $1.5 million. These taxes apply to people who lived in or owned property in New Jersey. The tax rate will differ depending on the relationship between the inheritor(s) and the decedent (the person who is now deceased).
parents are unfit, unwilling, or unable to provide care.
- What is the Categorization of Inheritors in New Jersey?
- What are New Jersey’s Exemptions From Inheritance Taxes?
- Does New Jersey Tax Gifts Made During the Decedent’s Lifetime?
- How to File an Inheritance Tax Return in New Jersey
- Does New Jersey Have Inheritance Tax Waivers?
- Do I Need an Attorney If I Have Concerns with New Jersey’s Inheritance Tax?
There are four classes of inheritors. As noted above, these classes are based on how closely the inheritors are related to the decedent.
Class A Inheritors are completely exempt from the inheritance tax. These inheritors include:
- The decedent’s spouse or domestic partner (a relationship between two unmarried persons who are living together in a “committed relationship”);
- The decedent’s parents;
- The decedent’s grandparents;
- The decedent’s children; and/or
- The decedent’s grandchildren.
Class B no longer applies to inheritors, as New Jersey state legislation has changed the law and eliminated that class.
Class C Inheritors are the decedent’s:
- Sons-in-law, daughters-in-law, or domestic partners of the decedent’s children; and/or
- Surviving spouses or surviving domestic partner’s of the decedent’s children.
For Class C Inheritors, the first $25,000 gifted to them is not taxed. However, anything exceeding that amount is taxed at a rate of 11 to 16 percent, depending on the gift’s value. The only inheritances that are subject to the 16 percent rate are the ones valued at more than $1.7 million.
Class D Inheritors include all of the other inheritors who do not fall under tax-exempt status. The first $700,00 is taxed at 15 percent, and anything above that amount is taxed at a rate of 16 percent as of 2016.
Class E Inheritors include the State of New Jersey itself, charitable societies, public entities, non-profit organizations, churches, public libraries, and hospitals. Inheritances valued at less than $500 are not taxed; life insurance proceeds are also not taxed. Gifts must usually be conveyed through will or trust.
As mentioned above and to be clear, the following are situations where no inheritance taxes are charged:
- Transfers that are worth less than $500;
- Life insurance proceeds paid to a named beneficiary;
- All of those inheritors listed Class A above;
- Charitable donations to donations, libraries, churches, etc.; and/or
- Donations to the state or federal government entities.
Gifts made within three years before the decedent’s death are taxed, unless it can be proven that the gifts were not made in contemplation of death, or it can be demonstrated that the recipient is exempt under the aforementioned exemptions.
Thus, when making or receiving a large gift, it is important to keep good records of the reason for the gift, should the need arise to demonstrate that the gift was not being made for tax fraud purposes.
The executor, or administrator of the estate, must file an inheritance tax return within eight months of the decedent’s death. Any other taxes must also be filed within this eight month period. Even if multiple parties owe an inheritance tax, only one return needs to be filed. An extension of up to four months may be granted by the state, but the tax must still be paid by the original deadline.
A great resource that can assist you is the State Division of Taxation website, which provides New Jersey inheritance tax returns, instructions, and current tax rates. Copies of the will (if applicable), the tax return, and the decedent’s last federal income tax return are filed with the New Jersey Division of Taxation.
Certain property will not be transferred out of the estate until the inheritance taxes are paid and the state issues a tax waiver. However, if no inheritance tax is owed, a Class A inheritor may file for a “Request for Real Property Tax” waiver.
Inheritance tax law is a complex, multi-faceted matter. If anything is filed incorrectly, the consequences could be heavy fines or even your not receiving your inheritance. A knowledgeable and experienced attorney, one who specializes in New Jersey estate law, will be able answer any questions you may have and ensure the process goes as smoothly as possible.
A licensed and qualified New Jersey estate lawyer is your best option in order to help guide you and your loved ones through the complex process of inheritance tax law. An experienced tax lawyer will also be able to counsel you on your different options or represent you and your interests in front of the court if the need arrives.