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Summary of New Jersey Estate Taxes

New Jersey Estate Taxes
The New Jersey estate tax was revised on July 1, 2002, and made significant changes to the previous New Jersey estate tax scheme. The changes apply retroactively to decedents dying after December 31, 2001.

The New Jersey estate tax is imposed on resident decedents and is intended to absorb the maximum state death tax credit allowed under federal estate tax law. However, New Jersey has decoupled itself from current federal estate tax laws and no longer has a true “pickup” tax. Instead, the personal representative of the estate can elect to apply either the maximum state death tax credit in effect on December 31, 2001, or an amount determined by the Division of Taxation under the Simplified Tax System.

The New Jersey Domestic Partnership Act, which establishes domestic partnerships for same sex and opposite sex (age 62 and older) unrelated partners, made significant changes to the New Jersey transfer inheritance tax, applicable to decedents dying on or after July 10, 2004. Provided that a valid domestic partnership is established, the Act exempts all transfers made by will, survivorship, or contract to a surviving domestic partner.

However, the New Jersey estate tax is not affected by the Act. The estate tax is based upon the federal estate tax credit for state death taxes allowable under the provisions of the Internal Revenue Code, which does not provide an estate tax deduction for property passing to a domestic partner.

New Jersey also imposes a transfer inheritance tax, at graduated rates, on property having a total value of $500 or more which passes from a decedent to a beneficiary. Transfers of property to the surviving spouse of a decedent, and, applicable to estates of decedents dying on or after July 10, 2004, transfers of property to a decedent’s domestic partner, are exempt from the New Jersey transfer inheritance tax. Also exempt from the tax are transfers of property to a father, mother, grandparent, child or children, adopted child or children, mutually acknowledged child, stepchild or issue of any child or adopted child of a decedent.

Deductions. The following items can be deducted from a decedent’s estate when calculating New Jersey estate tax liability:
decedent’s debts
funeral expenses (e.g., burial, funeral luncheon, minister/rabbi, monument, flowers)
ordinary administration expenses (including executors’ and attorneys’ fees)
state and local taxes up to the date of death
inheritance taxes paid to other states
mortgages (to show actual equity of mortgaged property)

Returns. A New Jersey transfer inheritance tax return (Form IT-R) is due within eight months after the decedent’s death. Any taxes owed must be paid within the same eight-month period. A self-executing waiver (Form L-8) is available for surviving spouses and Class A beneficiaries exempt from the tax.

New Jersey estate taxes are due on the decedent’s date of death and must be paid within nine months. There are two ways to file an estate tax return: the Form 706 method and the Simplified Tax System (Alternative) method.

The Form 706 method requires that a New Jersey Form IT-Estate is filed along with a 2001 federal Form 706 estate tax return completed according to the provisions of the Internal Revenue Code in effect on December 31, 2001. Using this method, the New Jersey return is due within nine months and 30 days of the decedent’s date of death.

The Simplified Tax System method is not intended for use with all estates. It can only be used when federal income and estate tax returns need not be filed. Under this method, a New Jersey Form IT-Estate must be filed within nine months of the decedent’s death.

Generation-skipping transfer tax. New Jersey does not impose this type of tax.