When Must New Jersey Death and Inheritance Taxes be Paid?
The New Jersey Inheritance Tax
Yes, New Jersey has an inheritance tax. It’s only one of five states in America that does, but it doesn’t apply to everyone. Let me explain. New Jersey imposes a transfer inheritance tax, at graduated rates, on property having a total value of $500.00 or more which passes from a decedent to a non-exempt beneficiary. Property passing to a surviving spouse, civil union or domestic partner, parents, grandparents, children, stepchildren or grandchildren is exempt from this tax. All other beneficiaries (except qualified charitable organizations) are subject to inheritance tax.
NJ Death Tax & Inheritance Tax
Here’s an example. An inheritance to a son is not subject to inheritance tax. An inheritance to a sibling, i.e., a sister, to a cousin, to your neighbor, is. The inheritance tax is, therefore, based on the relationship of the decedent to the beneficiary. New Jersey recognizes four classes of beneficiaries: A, C, B & E. The rates of tax imposed by the state depend upon the class the beneficiary is in; the rates of tax are imposed by the state. Class A beneficiaries are exempt from tax. Class C beneficiaries are not exempt from this class; $25,000 is exempt from tax, then the rates run from 11%-16% thereafter. Class D beneficiaries are all individuals who are not a Class A, C, or E beneficiary. They are taxed at 15% with an excess over $100,000 taxed at 16%. Class E beneficiaries are charitable organizations and non-profit organizations and are exempt from tax.
Final Miscellaneous Notes on the Inheritance Tax
The inheritance tax is due within eight months of the decedent’s death if any of the decedent’s property passes to any beneficiary other than a class A or class E beneficiary. Remember, if the beneficiaries are all Class A, then no tax is due.
Out-of-state real estate is excluded from the inheritance tax calculations as are life insurance proceeds to a named beneficiary. Lifetime gifts to charities and 501(c) organizations are also exempt from inheritance tax.
Understanding the Statute of Limitations for the Underpayment or Failure to Pay NJ Death Taxes
Client Testimonial
My son is an attorney in New Jersey. I am retired and live in Ocean County, New Jersey about 45 minutes away from my son. I needed a lawyer to look at my estate planning documents including Will, Power of Attorney and Health Care Directive. My son recommended Hanlon Niemann & Wright in Freehold, New Jersey, specifically Fredrick P. Niemann. I took his advice and met with Mr. Niemann. I am glad that I did. He is a warm and engaging person.
—Frank Mollo, Manchester, NJ
In 2018, New Jersey abolished its separate estate death tax. Previously, an estate may have been subject to the estate tax even though there is no inheritance tax payable.
The New Jersey Death Tax
Even though NJ has abolished its death tax because (in part) everyone is leaving NJ for lower cost states, it’s possible our legislature may introduce it again in the future. So let me explain some of the basic principles of the NJ death tax.
For purposes of the death tax, New Jersey taxes the gross estate. The gross estate includes all property in which a person holds an “interest” at the time of death, including life insurance. Yes, life insurance is part of your gross estate unless it’s an irrevocable trust. Your gross estate also includes your non-probate estate, which are assets passing by beneficiary designation. A good example of non-probate assets are joint bank accounts, or a brokerage account where you designate a person to receive the value of the asset at death, i.e., CD, money market account, real estate owned as joint tenant. But understand that just because something is owned jointly doesn’t mean it escapes tax. New Jersey looks to who acquired the “thing of value” and includes it in their estate.
A New Jersey Estate Tax Return had to filed if the decedent’s gross estate exceeds the death tax exemption amount. It must be filed within nine months of the decedent’s death. Currently, the only death tax on the books will be the Federal Death Tax but even so it will not be applicable to those individuals who are worth more than $11,000,000 (+/-) per person. That’s very few people.
If death tax is applicable, a copy of any Federal estate tax return filed or required to be filed with the Federal government must be submitted to New Jersey within 30 days of its receipt by the Internal Revenue Service.
Final Points on the New Jersey Death Tax
The old law argued that the estate file the tax return within 9 months plus 30 days of decedent’s death. So, it’s more like (almost) 10 months. Notice I said the tax return. Any tax due must be paid within 9 months of death.
Generally, for ease of approximate calculation, the average New Jersey estate tax rate is 10%, so for example, the tax due on a $1,000,000 estate is approximately $32,000 ($1,000,000 less $675,000 exemption = $325,000 x 10% = $32,500). But the actual range of tax is from 5% to 16% based on the value of the estate.
New Jersey imposes a lien on the assets until the tax is paid. Unpaid tax results in a 10% interest rate per annum and accrues starting daily after the expiration of 9 months grace period.
Federal Estate Tax as Part of New Jersey Estate Administration
A federal estate tax return generally must be filed with the Internal Revenue Service for the estate of every U.S. citizen or resident whose gross estate, taxable gifts and specific exemptions exceed approximately $11,000,000+ for decedents dying in 2019/2020 and after.
Because the rules that govern New Jersey Inheritance and Death Taxes and IRS Estate Taxes are complex and subject to change, you should consult Fredrick P. Niemann for up-to-date information. Contact Fredrick P. Niemann, Esq. at fniemann@hnlawfirm.com or call him toll-free at (855) 376-5291. He welcomes your calls and inquiries and you’ll find him very approachable and easy to talk to.
Estate Planning Law Attorney serving these New Jersey Counties:
Monmouth County, Ocean County, Essex County, Cape May County, Mercer County, Middlesex County,
Bergen County, Morris County, Burlington County, Union County, Somerset County, Hudson County, Passaic County