Estates of New Jersey residents are potentially subject to two types of state taxes: New Jersey Estate Tax and New Jersey Inheritance Tax.
First, an estate is subject to New Jersey Estate Tax if the value of the estate is more than $675,000.00. This tax is based solely on the value of the assets held by a person when they die, whether held individually or jointly with another person. If the value of the estate exceeds $675,000 a New Jersey Estate Tax Return (NJ IT-E) must be filed within nine months after death.
Second, the requirement to file New Jersey Inheritance Tax Return (NJ IT-R) is triggered by the classification of the estate’s beneficiaries. The NJ IT-R must be filed within eight months after death. The tax is determined by the relationship of each beneficiary to the decedent. Class “A” beneficiaries are not required to file or pay New Jersey Inheritance Tax. Class “A” beneficiaries are spouses, children (or lineal descendants), parents, grandchildren, grandparents, or stepchildren. There is also no inheritance tax on bequests to a qualified charity. Since, these are usually who most people leave their estates to, most estates are not subject to the New Jersey Inheritance tax.
If a person leaves property to a brother, sister, son-in-law or daughter-in-law (these are class “C” beneficiaries), the New Jersey Inheritance Tax Return must be filed. The first $25,000 of the bequest is not subject to inheritance tax. However, the next $1,075,000 is subject to tax at a rate of 11%; amounts in excess of that are taxed on a sliding rate scale ranging from 13% to 16%.
If the decedent makes a bequest which is greater than $500 to any other beneficiary (class “D” beneficiaries), a New Jersey Inheritance Tax Return must be filed and the entire amount to each such beneficiary is subject to tax. The first $700,000 of the bequest is taxed at 15% and the balance over $700,000 is taxed at 16%.
In order to transfer some assets to the appropriate beneficiary, a New Jersey Inheritance Tax Waiver is required. Filing the NJ IT-R and paying the required tax will result in the State of New Jersey issuing the New Jersey Inheritance Tax Waiver for each asset requiring one. Waivers are required to transfer title of real estate, stocks and bank accounts to the appropriate beneficiary.
If the estate is less than $675,000 and is being transferred to class “A” beneficiaries, title to the assets (other than real estate) may be transferred by executing a form L-8 waiver. Real estate may be transferred with executing a form L-9 waiver which is with New Jersey Inheritance and Estate Tax office in Trenton.
Additionally, an estate is subject to Federal Estate Tax, for decedents dying in 2012, if the estate is valued at more than $5,120,000.00 (although the exempt value may decrease.) Estates valued at $5,120,000 or more must file Federal Estate Tax Return form 706. The form 706 must be filed and the tax paid within nine months after the decedent’s death.
McLaughlin & Nardi’s estate attorneys are experienced in estate administration and preparing and filing the various federal and New Jersey inheritance and estate tax returns. Visit our website, e-mail us, or call one of our New Jersey estate administration attorneys.