Inheritance Tax, also referred to as the death duty, is the set of taxes which…
The Expensive NJ Inheritance and Estate Tax
Inheritance and Estate Tax
New Jersey 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.
If a decedent’s death occurs on or after January 1, 1985, property passing to a surviving spouse is entirely exempt from the tax. If a decedent’s death occurs on or after July 1, 1988, property passing to a decedent’s surviving parents, grandparents, children, stepchildren or grandchildren is entirely exempt from the tax. If a decedent’s death occurs on or after July 10, 2004, property passing to a surviving domestic partner (Domestic Partnership Act) is entirely exempt from tax. If a decedent’s death occurs on or after February 19, 2007, property passing to a surviving civil union partner is entirely exempt from tax.
In many instances, if all of a decedent’s property passes to a surviving spouse, domestic partner, civil union partner, children, stepchildren, parents, grandparents or grandchildren, it will not be necessary to file an Inheritance Tax return with the Division of Taxation. In such cases, Form L-8 may be used to secure the release of bank accounts, stocks, bonds and brokerage accounts and Form L-9 may be used to secure the release of the State’s lien on real property owned by the decedent.
When filing an Inheritance Tax return, Form IT-R should be used for resident decedents, and Form IT-NR should be used for nonresident decedents.
In addition to the inheritance tax, New Jersey imposes a separate Estate Tax. An estate may be subject to the New Jersey Estate Tax even though there is no New Jersey Inheritance Tax payable..
For decedents with a date of death prior to January 1, 2002 the New Jersey Estate Tax was designed to absorb the maximum credit for state inheritance, estate, succession or legacy taxes allowable in the Federal estate tax proceeding. It did not increase the estate’s total estate tax obligation.
For decedents with a date of death on or after January 1, 2002 the New Jersey Estate Tax was decoupled from the Federal estate tax proceeding. For more information see New Jersey Estate Tax: Important Provisions and Filing Requirements.
The New Jersey Estate tax is based upon the Federal Estate tax credit for state death taxes which was allowable under the provisions of the Internal Revenue Code in effect on December 31, 2001. The Federal Estate tax does not have a provision providing a deduction for property passing to a domestic partner. However, if the decedent was a partner in a civil union and died on or after February 19, 2007, survived by his/her partner, a marital deduction equal to that permitted a surviving spouse under the provisions of the Internal Code in effect on December 31, 2001, is permitted for New Jersey estate tax purposes. In these cases, the 2006 Form 706 should be completed as though the Internal Revenue Code treated a surviving civil union partner and a surviving spouse in the same manner.