Inheritance Taxes in New Jersey

INHERITANCE TAXES IN NEW JERSEY

In New Jersey, the law imposes a graduated inheritance  tax ranging from 11% to 16% on the real estate or personal property with a value of $500.00 or more to certain beneficiaries.

TAXABLE ASSETS

All jointly personal and real property is exempt from the probate process. This is because the property passes to the survivor by operation of law by reason of the joint ownership with survival provisions. Even so, all property, whether jointly or individually held, is taxable... provided that is not categorically exempted as in the case of a marital residence.

TAXES THAT INFLUENCE YOUR WILL

Three kinds of taxes can influence the provisions of your Will; Inheritance, estate, and gift taxes.
 Keep in mind that this is not the same as the annual income tax you are accustomed to. An inheritance by Will, by law, by surviving joint owner, or from life insurance is not income and is not subject to income tax. The inheritance is subject to separate rules of taxation, explained below.

BENEFICIARY CLASSES

New Jersey Inheritance tax law recognizes five beneficiary classes ranging from "A" to "E" as follows:

               Class "A" - father, mother, grandparents, husband, wife, child or children of a decedent, adopted child or children, issue of any child or legally adopted child of a decedent, mutually acknowledged child and step child.

               Class "B" - Eliminated by statute effective July 1, 1963.

               Class "C" - Brother or sister of decedent, wife or widow of a son of decedent, or husband or widower of a daughter.

               Class "D" - Every other transferee, distributee or beneficiary.

              Charitable transfers for the use of any educational institution, church, hospital, orphan asylum, public library, etc.

               Transfers for public purposes made to New Jersey or any political subdivision of the State.

               Payments from the New Jersey Public Employees' Retirement System, the New Jersey Teachers' Pension and Annuity Fund and the New Jersey Police and Fireman's Retirement System.

               Federal civil service retirement benefits payable to a beneficiary other than the estate.

               Annuities payable to survivors of military retirees.

WHEN TAXES ARE DUE

An inheritance tax return must be filed on the transfer of real or personal property within 8 months after the death of either:

               A resident decedent for the transfer of real or tangible personal property located in New Jersey or intangible personal property wherever situated, or

               A nonresident decedent for the transfer of real or tangible personal property located in New Jersey. No tax is imposed on nonresident decedents for intangible personal property such as stocks, bonds and investment accounts, wherever located.

               A tax return must be filed whenever any tax is due. The tax is a lien on all property for 15 years, unless paid sooner or secured by acceptable bond. Interest on unpaid tax will accrue at the rate of 10% a year.

BUT WAIT, THERE'S MORE!

ESTATE TAX IN ADDITION TO THE INHERITANCE TAX

In addition to the inheritance tax on the estate of certain resident decedents, New Jersey imposes an estate tax. The estate tax is designed to absorb any portion of the credit allowance under the Federal estate tax that is not fully taken up by the aggregate amount of all death taxes paid to any state, US territory or District of Columbia. This tax is the difference, if any, determined by subtracting the amount of the inheritance, legacy and succession taxes paid to this state and elsewhere from the allowable credit. Even estates that are partially or fully exempt from inheritance tax may be subject to New Jersey estate tax.

WAIVERS

Certain property in the name of or belonging to the decedent cannot be transferred without the written consent of the Director, Division of Taxation. This consent, commonly known as the "waiver", will not be granted until any tax due has been paid or provided.

EXCEPTIONS

Not withstanding the waiver provisions above, any financial institution may release up to 50% of any bank account, certificate of deposit, etc. to the survivor, in the case of a joint account, the executor, administrator or other legal representative of a RESIDENT decedent's estate. This procedure is referred to as a BLANKET WAIVER. This procedure is not available for the transfer of stocks and bonds. For a detailed explanation see N.J.A.C 18:26-11.16.

A SELF EXECUTING WAIVER, FORM L-8 has been created for Class "A" beneficiaries in the estates of RESIDENT decedents. This form may be used in two instances:

1.             Transfers to a surviving spouse in estates of decedents dying on or after January 1,1985.

2.             Transfers to a surviving spouse or any other Class "A" beneficiary in estates of decedents dying on or after July 1, 1988.

Use of this form MAY eliminate the need to file a formal Inheritance Tax return.

This form is to be filed with the financial institution which will then be authorized to release the subject asset without the necessity of receiving a waiver from the Division.

A REQUEST FOR A REAL PROPERTY TAX WAIVER, FORM L-9, has been created for Class "A" beneficiaries in the estates of RESIDENT decedents. This form may be used in two instances:

1.         Transfers to a surviving spouse in estates of decedents dying on or after January 1,1985 and the decedent's interest was in the decedent's name alone.

2.                      Transfers to a surviving spouse or any other Class "A" beneficiary in estates of decedents dying on or after July 1,1988 and the decedent's interest in the real estate was in the name of the decedent alone or with any Class "A" beneficiary.

NEITHER THE L-8 NOR THE L-9 may be used where it is claimed that a relationship of mutually acknowledged child exists or for the release of a safe deposit box.

PARTIAL RELEASE OF FUNDS

Banks, savings and loan associations, and building and loan associations may release 50% of all funds on deposit with them to the proper party prior to the issuing of a waiver. The full amount on deposit as of the date of death of the decedent must be listed in the inheritance tax return.

REAL PROPERTY

Unpaid inheritance taxes constitute a lien on real property and tax waivers are required to transfer real estate. However, real property held by husband and wife as "tenants by the entirety" (names of both husband and wife appear on the deed) in the estate of the spouse first dying need not be reported and may be transferred without waiver, regardless of the date of death.

In addition, a membership certificate or stock in a cooperative housing corporation held in the name of a decedent and a surviving spouse as joint tenants with right of survivorship is also exempt, but a waiver is required for this transfer.

AUTOMOBILES. HOUSEHOLD AND PERSONAL EFFECTS

Waivers are not required for automobiles, household goods, accrued wages or mortgages, but these must be reported in the return.

 

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