Last week, the New Jersey legislature announced its plan to repeal estate tax by January…
New Jersey inheritance tax
If you live in New Jersey, then you’re lucky enough to live in one of the two states that collects both a separate state inheritance tax and estate tax (the other is Maryland). Currently the following rules apply with regard to the New Jersey inheritance tax:
•Charitable organizations are exempt from the tax.
•All other beneficiaries are broken down into three categories with regard to the tax:
•Class A beneficiaries. No tax is imposed on the following beneficiaries – spouses, civil union partners, domestic partners, parents, grandparents, and descendants (including those legally adopted).
•Class B beneficiaries. This class no longer exists.
•Class C beneficiaries. For the following beneficiaries – siblings, spouse or widow(er) of a child of the decedent, and civil union partner or surviving civil union partner of a child of the decedent – the first $25,000 is exempt and transfers above this amount are taxed at 11%–16%.
•Class D beneficiaries. For all other beneficiaires, the first $500 is exempt and transfers above this amount are taxed at 15%–16%.
•Life insurance paid to a named beneficiary is exempt from the tax.
•An inheritance tax return, Form IT-R for residents or Form IT-NR for nonresidents, must be filed and the tax paid within eight months after the decedent’s death.
•While no inheritance tax return is required to be filed for Class A beneficiaries, Form L-8 may be used to secure the release of bank accounts, stocks, bonds and brokerage accounts. If there was any real property in the name of the decedent, Form L-9, or Form L-9NR for a nonresident decedent, may be filed to release the State’s lien on the real property.
The bottom line – if you’re a New Jersey resident and your estate is passing to someone other than your immediate family, or if you’re a nonresident who owns real estate and/or tangible personal property located in New Jersey and it’s not passing to your immediate family, then your beneficiaries may owe a New Jersey transfer inheritance tax.