Besides the Federal estate tax, there used to be two separate New Jersey State taxes relating to a resident’s death: the New Jersey Estate Tax and the New Jersey Inheritance Tax.
New Jersey Estate Tax
Previously, New Jersey had a State estate tax, which was applicable to estates exceeding a certain value. Governor Christie signed a law to eliminate the New Jersey Estate Tax for resident decedents dying on or after January 1, 2018. This means that estates are no longer subject to State estate tax.
New Jersey Inheritance Tax
The Inheritance Tax is imposed on property transferred from a decedent to certain beneficiaries. Except for certain specific transfers, i.e., life insurance payouts to named beneficiaries, it is assumed that the recipient of the inheritance is responsible for the tax payment unless the Last Will and Testament of the decedent specifically states otherwise. The rate of the inheritance tax varies depending on the relationship of the beneficiary to the decedent or the classes of beneficiaries:
Class A:
Class A beneficiaries include surviving spouse, parents, children, grandchildren, and step-children. Class A beneficiaries are exempt from the Inheritance Tax.
Class C:
Class C beneficiaries include siblings or half-siblings of a decedent, son-in-law or daughter-in-law of a decedent, or civil union partner or surviving union partner of a child of a decedent (after February 19, 2007). Each of the Class C beneficiaries is exempt for the first $25,000 of the inheritance. Inheritances exceeding $25,000 are subject to tax rates from 11% to 16% per beneficiary.
Class D:
Class D beneficiaries are any beneficiaries that are not specifically classified as Class A, Class C, or Class E. Examples of Class D beneficiaries includes nieces, nephews, aunts, uncles, step-grandchildren, remote relatives, and friends. Each of the Class D beneficiaries is subject to tax rates from 15% to 16%.
Class E:
Class E beneficiaries are also exempt from Inheritance Tax. They include qualified charities, 501(c)(3) organizations, educational and medical institutions.
It is important for individuals dealing with estate planning or the estate of a deceased person in New Jersey to consult with a tax professional or an attorney who specializes in estate law to understand their obligations and options.