Gifting your assets to your intended beneficiaries is an effective way to minimize Federal and New Jersey Estate taxes. In order to do so, you must consider the tax implications of making the gift, who will receive the gift, the type of gift, the value of the gift, and the cost basis of the gift.
There are several possible tax liabilities which can be incurred as the result of making a gift: federal gift tax, capital gains tax, generation skipping transfer tax, federal estate tax, New Jersey estate tax, and New Jersey inheritance tax.
Gifts made in contemplation of death can trigger New Jersey inheritance tax liability if the value of the gift is over $500 and they are made within three years of the date of a person’s death. New Jersey Inheritance tax is a tax imposed upon certain classes of beneficiaries. Thus, you must consider who is receiving the gift before you can determine if this will result in liability. The New Jersey tax code separates beneficiaries into “Classes.” Class A beneficiaries pay no inheritance tax, Class C beneficiaries will pay tax on gifts over $25,000 made within three years of the date of death and Class D beneficiaries will pay tax on gifts over $500 made within three years of the date of death.
The decedent’s spouse, civil union partner, domestic partner, children, grandchildren, great-grandchildren, parents, grandparents, great-grandparents, and step-children are Class A beneficiaries, and no inheritance tax will be attributable to gifts made to these people. The decedent’s brother and sister, and son-in-law, and daughter-in-law (if they are the spouse of decedent’s predeceased child) are Class C beneficiaries. Anyone not included in Class A or Class C are Class D Beneficiaries.