While New Jersey no longer has an estate tax, which is a tax based on the overall size of an estate, New Jersey still taxes certain transfers at death. This separate tax is known as the New Jersey Inheritance Tax. What’s the difference? Unlike the old estate tax, the New Jersey Inheritance Tax is not based on the size of the estate but on the relationship between the decedent and the beneficiaries.

If you die in New Jersey and you bequeath a car to your nephew valued at $5,000, New Jersey will tax that transfer at 15%. This means that either the estate or the nephew will owe NJ $750 depending on how the will is written.

The tax rate depends on the relationship between the decedent and the beneficiary, with lower rates for transfers to siblings and higher rates for transfers to more distant relatives and non-relatives. Transfers to spouses and children and not subject to the inheritance tax.

Beneficiary Classes

Under New Jersey law, beneficiaries are divided into separate classes, with different rules applying to each class.

For example, a class “A” beneficiary includes the decedent’s father, mother, grandparents, spouse/civil union partner (after 2/19/07), domestic partner (after 7/10/04), child or children of the decedent, adopted child or children of the decedent, issue of any child or legally adopted child of the decedent, and stepchild of the decedent. Class “A” beneficiaries are not subject to the inheritance tax.

Class “C” beneficiaries (there is no Class “B”) include the decedent’s brother or sister, including half-brother and half-sister, wife/civil union partner (after 2/19/07) or widow/ surviving civil union partner (after 2/19/07) of a son of the decedent, or husband/civil union partner (after 2/19/07) or widower/surviving civil union partner (after 2/19/07) of a daughter of the decedent.

Class “E” beneficiaries are generally charitable organizations that are not subject to tax.

Class “D” beneficiaries are everyone else.

Tax Rates

For transfers to Class “C” beneficiaries, the following tax rates apply:

The first $25,000 is exempt from tax.

The next $1,075,000 is taxed at 11%.

The next $300,000 is taxed at 13%.

The next $300,000 is taxed at 14%.

Amounts over $1,700,000 are taxed at 16%.

For Class “D” beneficiaries, the first $700,000 is taxed at 15% and amounts over $700,000 are taxed at 16%.

Click here for a sample calculation.

Transfers Exempt from the Inheritance Tax

In addition, certain transfers are exempt from the inheritance tax regardless of who the beneficiary is.

For example, the proceeds of any contract of insurance insuring the life of a resident or nonresident decedent paid or payable, by reason of the death of such decedent, to one or more named beneficiaries other than the estate, executor or administrator of such decedent are exempt for New Jersey Inheritance Tax purposes.

The proceeds of any pension, annuity, retirement allowance, return of contributions or benefit payable by the Government of the United States pursuant to the Civil Service Retirement Act, Retired Serviceman’s Family Protection Plan and the Survivor Benefit Plan to a beneficiary or beneficiaries other than the estate or the executor or administrator of a decedent are also exempt.

When to File and Pay the Tax

A transfer inheritance tax return (Form IT-R) must be filed and the tax paid on the transfer of real and personal property within eight months after the decedent’s death.

Resident and Nonresident Estates

The inheritance tax applies to both residents of New Jersey and non-residents. New Jersey taxes resident decedents for the transfer of real or tangible personal property located in New Jersey or intangible personal property wherever situated. New Jersey taxes nonresident decedents for the transfer of real or tangible personal property located in New Jersey. No tax is imposed on nonresident decedents for real property located outside of New Jersey and intangible personal property wherever situated.

Failure to Pay

The inheritance tax return must be filed whenever any tax is due or a waiver is needed to close an account. The tax is a lien on all property for fifteen (15) years. Interest accrues on unpaid taxes at the rate of 10% per year.

Conclusion

If you have more specific questions, it is best to consult with a tax professional or attorney for guidance with experience filing inheritance tax returns. With proper planning, it may be possible to reduce or eliminate this tax from your estate.