The NJ inheritance tax is applicable when a NJ resident (or someone who owned property in NJ) leaves property to someone they are not closely related to after they pass away. Here is what you need to know if you are inheriting property in the Garden State.
How are inheritors classified?
New Jersey law separates inheritors into classes A-E based on their relationship to the deceased.
Class A beneficiaries do not have to pay inheritance tax. These beneficiaries include the deceased’s:
- spouse/domestic partner
- parent/grandparent
- child/stepchild
- grandchild, great-grandchild or any other direct descendant
Class B was removed from NJ law.
Class C beneficiaries are not taxed on the first $25,000 of property. Any amount exceeding that is taxed at the following rates:
- the next $1,075,000: 11%
- the next $300,000: 13%
- the next $300,000: 14%
- the next $1,700,000: 16%
Class C beneficiaries include:
- siblings
- spouse/domestic partner of a child
Class D includes all other beneficiaries. There are no special exemptions for this category. The tax rates are:
- the first $700,000: 15%
- anything above $700,000: 16%
Class E beneficiaries are also exempt. These beneficiaries include public or charitable organizations, educational institutions, churches, hospitals, orphanages, public libraries, and some nonprofit agencies.
Are there other tax exemptions?
There are some other NJ inheritance tax exemptions. The tax will not apply to:
1. Any inheritance amount that is valued at less than $500
2. Life insurance proceeds
3. Payments from the NJ Public Employees Retirement System, the NJ Teachers’ Pension and Annuity Fund, or the NJ Police and Fireman’s Retirement System
4. Federal Civil Service Retirement benefits paid to the listed beneficiary
5. Payments from the Retired Serviceman’s Family Protection Plan or the Survivor Benefit plan made to the listed beneficiary.
Are gifts made before the deceased’s passing taxed?
Gifts given in the three years before the date of death will also be subject to NJ inheritance tax. The above exemptions will still apply. If it can be proven that the gift was given without “contemplation of death” then the money or property will not be taxed.
How do I file an Inheritance Tax return?
The executor or administrator of the estate will file one inheritance tax return, even if several individuals owe inheritance tax. The tax return, copies of the will, and the deceased person’s most recent federal income tax return must be filed with the NJ Division of Taxation within eight months of the date of death.
What is an inheritance Tax waiver?
Class A beneficiaries can file a “Request for Real Property Tax Waiver,” which, if approved, will indicate an inheritance tax return does not have to be filed in order for the beneficiary to receive their inheritance.
If you have more questions about the New Jersey inheritance tax, Veitengruber Law has the answers. Estate Law can be complex and difficult to understand. We can give you the knowledge you need to make informed decisions for yourself and your family regarding all matters of estate planning.