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New Jersey Transfer Inheritance Tax : How the Tax Works

New Jersey also has an inheritance tax. An inheritance tax means that when a New Jersey resident dies his or her assets will be taxed on the basis of who inherits those assets

No Tax on Most Inheritances

For most estates, there will be no tax. If a decedent’s estate goes to a spouse, child or further descendant (e.g., grandchild), parent, grandchild, grandparent or stepchild, no tax is due. These beneficiaries are called “Class A” beneficiaries.

If a decedent leaves money to a charity, an educational institution, a church, a hospital, a library or the State of New Jersey or its political subdivisions, no tax is due. In addition, transfers of decedent’s property less than $500 are exempt from inheritance tax.

Recipients That Pay Tax

If property is given to other family members, such as the decedent’s brother, sister, son-in-law or daughter-in-law the first $25,000 is not taxed (an exemption applies). The balance of the inheritance is presently taxed at 11% for the next $1,075,000 and thereafter at rates that range from 13% to 16%.

All other beneficiaries (persons not included in the above definitions of family) are presently taxed at 15% for the first $700,000, and at 16% on amounts over that figure.

Approvals Required to Transfer
Certain Assets; Forms

 

Some assets (real estate, stocks and bank accounts) require the written consent of the director of the New Jersey Division of Taxation before they can be transferred. This consent is commonly known as a Waiver. Waivers are not generally required to transfer cars, personal property such as household goods and jewelry and most employee benefits.

In most cases for decedents dying after 12/31/01 leaving estates valued less than $675,000 Class “A” beneficiaries (spouse, child, parent, grandchild, grandparent or stepchild) may transfer bank accounts, stocks and bonds by utilizing a Self- Executing Waiver, form L-8. The Self-Executing Waiver is filed with the bank, financial institution or broker where the asset is located.

Real Estate

For Class “A” beneficiaries of decedents dying after 12/31/01 leaving estates valued less than $675,000, the transfer of real estate can normally be effectuated by the filing of form L-9, Real Property Tax Waiver. The L-9 form must be filed with the Individual Tax Audit Branch – Inheritance and Estate Tax office in Trenton. If a husband and wife own real estate as tenants by the entirety the surviving spouse need not file a form L-9 for the property may be transferred at any time.

Inheritance Tax

If a decedent does not leave all assets to a Class “A” beneficiary, a formal Inheritance Tax Return will have to be filed. All of the necessary forms for filing the Inheritance Tax Return can be obtained from the Individual Tax Audit Branch, Inheritance and Estate Tax, New Jersey Division of Taxation, P.O. Box 249, Trenton, New Jersey 08695-0249. In addition, the Branch will answer questions if you call (609) 292-5033.

If a formal Inheritance Tax Return is required, it is important to remember that you will need to attach a copy of the decedent’s Will and any amendments (Codicils), a copy of the decedent’s last full year’s federal income tax return (Form 1040), and a certified check for any tax due. Formal tax returns are due eight (8) months after the decedent’s death. If the inheritance tax is not paid within eight months, interest will accrue and no tax waivers will be issued until payment is received. Caution: This is one month earlier than the federal and New Jersey estate tax returns are due.
Executor’s Fees

The Executor is entitled to a fee for services performed. Under New Jersey law, the Executor of an estate is generally entitled to the following commissions:

a. 6% on all estate income;
b. 5% of the estate up to $200,000;
c. 3.5% on excess above $200,000 up to $1,000,000;
d. 2% on excess over $1,000,000 or such other percentage as the Superior Court may determine. There are different rules for commissions when there is more than one Executor, or when the Executor has rendered unusual or extraordinary services. In some cases family members may choose not to accept (waive) fees. However, a decision to waive fees should be made only after the legal (who will get the money) and tax (what is the cost of the lost deduction) issues are considered.

Refunding Bond

Once all assets of the estate have been disbursed, the Executor must have each beneficiary sign a “Refunding Bond.” The Executor should also have each beneficiary sign a “Release” at the same time. By executing a Refunding Bond, the beneficiary is agreeing that, in the event the assets distributed to him or her are needed at a later time to pay any debt of the estate, the beneficiary will return part or all of the assets needed to pay estate debts. This provides the Executor with security in the unlikely event claims are subsequently made against the estate. The Release absolves the Executor from any liability pertaining to his or her administration of the estate. The Surrogate’s Court provides a free sample form combining a Release and Refunding Bond. The executed Release and Refunding Bond (as executed in front of a Notary Public) should then be filed with the Surrogate’s Court. When all Releases and Refunding Bonds have been filed, the estate is then closed.