New Jersey Inheritance Taxes

     New Jersey law imposes a graduated inheritance tax on estates valued over $500.00. The amount of that tax depends upon the size of the estate and who is inheriting.  Generally, people considered closer in relation (called beneficiary classes) to the decedent, recieve preferential tax treatment.  Call today, for a free consultation with a NJ Inheritance Tax Lawyer.  It is important to note that NJ Inheritance Tax is different than NJ Estate Tax.  To figure out your tax liability, you must first determine your beneficiary class, your applicable tax rate, and what assets can be taxed.


Beneficiary Classes

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

  1. 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.
  2. Class "B" - Eliminated by statute effective July 1, 1963. 
  3. Class "C" - Brother or sister of decedent (including half brothers / sisters), wife or widow of a son of decedent, or husband or widower of a daughter.
  4. Class "D" - Every other transferee, distributee or beneficiary. 15%
  5. Class “E” - Charitable transfers for the use of any educational institution, church, hospital, orphan asylum, public library, etc. 0%


How Much Will I Pay?

  1. Class "A" beneficiaries do not have any NJ Inheritance Tax liability.
  2. Class C" beneficiaries are subject to an 11% tax rate for assets valued between $25,000 and $1,100,000; 13% for the next $300,000; 14% for the next $300,000; and 16% for any amounts over $1,700,000.
  3. Class "D beneficiaries are subject to a 15% tax rate for the first $700,000, and 16% for any monies over that.
  4. Class “E” beneficiaries do not have any NJ Inheritance Tax liability


What Assets are Taxable?

All jointly held personal and real property are 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 it 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.


When are NJ Inheritance Taxes Due?

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

  1. A resident decedent for the transfer of real or tangible personal property located in New Jersey or intangible personal property wherever situated, or
  2. 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.
  3. 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.


New Jersey Estate Tax

In addition to the inheritance tax, New Jersey imposes an Estate Tax which is in addition to the Federal 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.  These can be complicated calculations, and we highly advise consulting with an experienced NJ Estate Tax Lawyer.


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.

 

Frequently Asked Questions:

What kind of Charities are covered as Class E Beneficiaries?

Most qualified charitable organizations qualify.  Additionally, transfers for public purposes made to New Jersey or any political subdivision of the State.

  1. 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.
  2. Federal civil service retirement benefits payable to a beneficiary other than the estate.
  3. Annuities payable to survivors of military retirees.
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