Estate & Inheritance Taxes

How the Tax Works

Unlike the Federal Government and many States, New Jersey has both an Inheritance Tax and an Estate Tax. This means that when a New Jersey resident dies, his or her assets will potentially be taxed on the basis of who inherits the assets AND on the value of the estate.

In New Jersey, there will be no inheritance tax if a decedent’s estate goes to a spouse, child, grandchild, parent, grandparent. These are lineal descendents and are called “Class A” beneficiaries in New Jersey. (NOTE: Inheritance taxes for Pennsylvania, Delaware and New York are entirely different.)

If a decedent (the person who has just died) leaves money to a charity, such as an educational institution, church, or hospital, no tax is due on those gifts or bequests. In other words, the entire charitable bequest is exempt from both Inheritance Tax and Estate Tax.

If property is given to other family members, such as the decedent’s brother or sister, the first $25,000 is exempt from inheritance taxes for NJ estates. The balance of the inheritance is presently taxed at 11% for the next $1,075,000 and thereafter at rates from 13% to 16%.

All other beneficiaries (cousins, friends, distant relatives, etc.) are presently taxed at 15% for the first $700,000 and at 16% on amounts over that. There is no exempt amount for cousins, friends, distant relatives, etc.

Approvals Required to Transfer Certain Assets

Some assets such as 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. The formal name for this consent is an Inheritance or Estate Waiver. Waivers are not generally required to transfer cars, personal property such as household goods and jewelry.
For estates valued at less than $5.6 million with the entire estate going to Class “A” beneficiaries (spouse, child, parent, grandchild, grandparent) bank accounts, stocks and bonds can be transferred 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 leaving estates valued at less than $5.6 million you will need to file Form L-9, the Real Property Tax Waiver 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; the property may be transferred at any time.

Inheritance Tax

If a decedent does not leave all assets to Class “A” beneficiaries, an Inheritance Tax Return will have to be filed. All of the necessary forms for filing the Inheritance Tax Return can be obtained on-line at www.state.nj.us/treasury/taxation/pdf/other_forms/inheritance/itrbk.pdf, or by writing to 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, they will answer questions if you call (609) 292-5033.

The Inheritance Tax Return is due within eight (8) months after the decedent’s death. If the inheritance tax is not paid within eight months, interest will accrue at a rate of 8% per year 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.

Estate Tax

Estate Tax is based on the size of the estate which includes life insurance. A New Jersey Estate Tax return must be filed if the value of gross estate exceeds $5.6 million. The tax rate is a graduated or progressive rate.

Why a Will is Important? – Tax Planning

Tax planning is another important area of concern that can be dealt with through the provisions of the Will. For example, if a married couple has combined assets including jointly owned assets in excess of $5,600,000 (the amount currently sheltered from New Jersey estate taxes) and there is no Will, then most of the assets will pass to the surviving spouse without any tax burden upon the death of the first spouse to die because of the unlimited marital deduction. However, upon the death of the surviving spouse all property in excess of $5.6 million (or whatever the exclusion amount is in the year of death) will be subject to estate taxes. A properly drafted pair of spousal Wills, together with asset restructuring, can allow the couple to pass $11,300,000 in assets estate tax-free to their designated beneficiaries using a Credit Shelter Trust, or a Disclaimer Trust.

Federal Estate Tax

The Federal Estate Tax exemption for 2018 is $5,600,000 meaning most of us will be subject to New Estate Estate Tax, but not Federal Estate Tax. Remember, the value or size of the estate includes life insurance.

Because of this Federal tax, as well as the legal and personal complexity which accompany most larger estates, every individual with (or couple with combined) net assets that might possibly exceed $6 million (including the net value of your house, life insurance, pension and all other assets) should consult with a New Jersey attorney or accountant who specializes in estate tax planning. A proper estate tax plan can cost between $1,500 and $3,500, depending on the complexity and the size of the estate. However, this fee can be very cost effective in offsetting estate tax. Individuals in this asset category can face a substantial estate tax liability which can be reduced or eliminated by having a properly drafted Will, durable power of attorney with gift provisions, and other planning steps.