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NJ Inheritance Tax

Inheritance Tax, also referred to as the death duty, is the set of taxes which has to be paid by the heir on inheriting the estate of a deceased person. This tax is calculated after taking the total value of the property and money into consideration. The norms of inheritance tax can differ from nation to nation, as well as state to state. For instance, the due date for New Jersey inheritance tax is 8 months from death. Inheritance tax is not a prominent contributor to the treasury, and hence is not considered to be as important as income tax.

Inheritance Tax in the United States
In the United States, two things are taken into consideration when imposing inheritance tax – the sum value of the estate and the inheritor’s relationship to the deceased. In order to qualify for inheritance tax, generally, the sum value of the estate must exceed US $1.5 million. The immediate relatives of the person i.e. the spouse, children, parents and grandchildren, are classified as ‘Class A’ relatives, and hence are exempted from paying inheritance tax. The states which collect inheritance tax in the United States are Indiana, Kentucky, Pennsylvania, Iowa, Maryland, Nebraska and New Jersey.

Inheritance Tax in New Jersey
The inheritance tax in New Jersey is more often referred to as New Jersey inheritance tax. The sum value of the estate should be at least $500 or more in order to levy this tax. New Jersey inheritance tax, which is to be paid by the legal beneficiaries, and New Jersey estate tax, which is to be paid from the assets in the estate before distribution, are two different concepts. Assets such as stocks, bonds and security are subject to inheritance tax in New Jersey, only when the deceased person was a resident of New Jersey. Income from life insurance contract of the deceased person is directly payable to the beneficiaries and hence is not considered to be taxable as per the New Jersey inheritance tax laws. The beneficiaries/heirs of the estate are categorized into various classes depending on their relationship with the decedent. The exemption amount and the tax rate varies from one class to another. Generally, this tax is imposed at the graduate rate ranging between 11 to 16 percent. Some of the relatives, such as the spouse and the children of the decedent, are totally exempted from paying the inheritance tax in New Jersey. The second class of beneficiaries, which includes the brother, sister, son-in-law or the daughter-in-law of the deceased person, are granted an exemption of $25,000. But for the next $1,075,000, they are taxed at 11 percent and for the estate amounting to more than that 13 to 16 percent. Rest of the beneficiaries are taxed at 15 percent for the first $700,000 and 16 percent for estate amounting to more than that.

Filing and Payment of New Jersey Inheritance Tax
If the beneficiaries are subject to New Jersey inheritance tax, they have to file an inheritance tax return. If the decedent was a resident of New Jersey, Form IT-R should be used, and if the decedent was not a resident, then Form IT-NR should be used. If the beneficiaries, being the immediate relatives, are exempted from the inheritance tax, they don’t have to file an inheritance tax return. They will have to use Form L-8 in order to release bank accounts, stocks, bonds etc, and Form L-9 in order to release the State’s lien on real property. Before transferring the assets like real estate or stocks, the beneficiary has to obtain a written consent from the Director of the New Jersey Division of Taxation. This waiver, which doesn’t apply when Forms L-8 and L-9 are not applicable, is not granted until the beneficiary pays the inheritance tax. The due date to pay inheritance tax in New Jersey is 8 months after the death of the individual whose estate will be passed on to the heir. Tax debt, if any, after the due date will be subject to interest.

Even though, both inheritance tax as well as estate tax are based on the same principle, (i.e. when an individual is legally named the heir of the estate, he is liable to pay a particular sum to the administrative body), the state government is assigned with the responsibility to collect the inheritance tax, while the federal government collects the estate tax.