What Is the Categorization of Inheritors in New Jersey?
The categorization of inheritors in New Jersey is as follows.
Class A beneficiaries are those who are closely related to the deceased person, such as spouses, parents, children, grandchildren, stepchildren, and civil or domestic partners. They are exempt from the inheritance tax and pay no tax on the property or assets they inherit.
Class B beneficiaries are no longer in existence. They were eliminated in 1963.
Class C beneficiaries are those who are somewhat related to the deceased person, such as siblings, daughters-in-law, sons-in-law, and surviving civil or domestic partners of the deceased person’s children. They are subject to the inheritance tax at rates ranging from 11% to 16%, depending on the amount of inheritance. They also have a $25,000 exemption for each beneficiary.
Class D beneficiaries are those unrelated to the deceased person or have a distant relationship, such as aunts, uncles, nieces, nephews, cousins, friends, organizations, and corporations. They are subject to the inheritance tax at a flat rate of 15% for amounts up to $700,000 and 16% for amounts above $700,000. They have no exemption for each beneficiary.
Class E beneficiaries are qualified charities, religious institutions, educational and medical institutions, non-profit benevolent or scientific institutions, the state of New Jersey, or any of its political subdivisions. They are exempt from the inheritance tax and pay no tax on the property or assets they inherit.
What Are New Jersey’s Exemptions From Inheritance Taxes?
New Jersey does not impose an inheritance tax on property or assets that are inherited by Class A beneficiaries, who are the closest relatives of the deceased person. These include spouses, civil union or domestic partners, parents, grandparents, children, stepchildren, and grandchildren.
New Jersey also does not impose an inheritance tax on property or assets inherited by Class E beneficiaries who are qualified charities, religious institutions, educational and medical institutions, non-profit benevolent or scientific institutions, the state of New Jersey, or any of its political subdivisions.
New Jersey does not collect an inheritance tax on transfers of less than $500 or life insurance proceeds paid to a named beneficiary.
However, New Jersey does impose an inheritance tax on property or assets inherited by other classes of beneficiaries who are not as closely related to the deceased person or have no relation at all. These include siblings, daughters-in-law, sons-in-law, aunts, uncles, nieces, nephews, cousins, friends, organizations, and corporations. The inheritance tax rates for these beneficiaries range from 11% to 16%, depending on the amount of inheritance and the class of beneficiary.
Does New Jersey Tax Gifts Make During the Decedent’s Lifetime?
New Jersey does not tax gifts made during the decedent’s lifetime. New Jersey is one of the few states that does not have a state gift tax. However, you may still owe a federal gift tax if the value of the gifts you provide exceeds a certain amount.
Following the passing of the Tax Cuts and Jobs Act, the federal gift tax exclusion rose to $16,000 for 2022 and $17,000 for 2023. This means that you can give someone up to $16,000 or $17,000 worth of cash, assets, or property (depending on which year it is) annually without worrying about a gift tax. You would have to report it if you breach that threshold.
But you won’t owe anything out of pocket until you exceed your lifetime exclusion limit. This limit is $12.06 million for 2022 ($24.12 million for married couples) and $12.92 million for 2023 ($25.84 million for couples).
How to File an Inheritance Tax Return in New Jersey?
Here are the steps to file an inheritance tax return in New Jersey.
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1. Determine If You Need to File an Inheritance Tax Return
An inheritance tax return must be filed for an estate when the gross share, subject to tax without reduction for liabilities, of any beneficiary, heir, transferee, or surviving joint tenant exceeds the allowable exemption from such share or if a federal return has been filed. However, no tax is due on property left to a surviving spouse, stepchildren, lineal descendants, or ascendants.
2. Obtain the Necessary Forms and Instructions
You can download the New Jersey Inheritance Tax Return (Form IT-R) and the New Jersey Inheritance Tax Schedules (A-K) from the New Jersey Department of Revenue website. You can also use the New Jersey State Bar Association probate schedules instead of Schedules A-I. You will also need a copy of the decedent’s will, trust, or other estate documents.
3. Fill Out the Forms and Schedules
You will need to provide information about the decedent, the beneficiaries, the assets and liabilities of the estate, and the computation of shares and tax. You must also attach supporting documents, such as appraisals, receipts, or affidavits.
4. Submit the Forms and Payment
The inheritance tax return must be filed, and any tax due must be paid on or before the last day of the eighth month after the date of the decedent’s death. You can request an extension of time to file and pay using Form IT-EXT. You can mail your forms and payment to:
New Jersey Division of Taxation Inheritance and Estate Tax
PO Box 249
Trenton NJ 08695-024
You can also file electronically using the eFile & Pay system.
5. Wait for a Clearance Certificate
After you file your inheritance tax return and pay any tax due, you will receive a clearance certificate from the New Jersey Division of Taxation. This certificate indicates that all inheritance tax obligations have been met and that no further claims can be made against the estate by the state.
Do I Need an Attorney If I Have Concerns with New Jersey’s Inheritance Tax?
Inheritance tax law is a complex, multi-faceted matter. If anything is filed incorrectly, the consequences could be heavy fines or not receiving your inheritance. A knowledgeable and experienced attorney practicing in New Jersey estate law will be able to answer any questions you may have and ensure the process goes as smoothly as possible.
The tax code, especially inheritance tax provisions, undergoes regular changes and updates. An attorney who knows New Jersey estate law remains updated on these modifications, ensuring you benefit from any potential exemptions or deductions.
Beyond merely addressing concerns related to inheritance tax, an estate lawyer can assist in comprehensive estate planning. This could mean setting up trusts, wills, or other mechanisms to optimize your inheritance and reduce the tax burden.
A licensed and qualified New Jersey inheritance lawyer is your best option 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 options or represent you and your interests in front of the court if needed.