There is no New Jersey Estate Tax for estates of non-resident decedents.
Decedents who reside in other states are still subject to the New Jersey Inheritance Tax if they own tangible personal property (e.g. automobile, boat, furniture, jewelry, etc.) or real estate located in New Jersey. For example, if a resident of Florida dies owning a summer house on the Jersey shore, and transfers that house in his will to his favorite nephew, New Jersey will tax the transfer regardless of the value of the real estate.
New Jersey taxes non-residents on the transfer of this property and requires the filing of Form IT-NR in certain situations.
First, when is Form IT-NR not required to be filed? If all of the beneficiaries of decedent’s estate, both in and outside of New Jersey, are either Class A beneficiaries or charitable organizations, no tax is imposed and Form IT-NR is not required. (Note however, that there still may be a reporting obligation using Form L-9 NR).
Class A beneficiaries include a parent, grandparent, spouse, civil union partner, child (including a legally adopted child), grandchild, and stepchild.
Beneficiaries such as a brother, sister, spouse of a child, niece, nephew, business partner, favorite waitress, are not Class A beneficiaries.
If the decedent’s estate passes into or through a trust, where all beneficiaries are Class A, Form IT-NR is not required to be filed.
Second, when is Form IT-NR required to be filed? The form and taxes owed are due eight (8) months following the decedent’s death. Note that Form L-9 NR is for informational purposes only and has no due date. Taxes not paid within this timeframe will accrue interest at 10% per year.
Third, what if all beneficiaries of the estate reside outside of New Jersey? Doesn’t matter, the tax is based on where the property is located, not where the beneficiaries are located.
Fourth, what happens if the decedent had a bank account in New Jersey? Bank accounts are considered intangible assets and are not subject to the inheritance tax for non-residents. The executor or beneficiary may still be required to file an affidavit with the branch to recover the assets.
Fifth, what about stock in New Jersey companies or membership interests in a partnership or LLC? These assets are also considered to be intangible assets not subject to the tax.
Does this mean that a person can transfer real property to an entity and avoid payment of the tax? Possibly, there are many planning strategies available (and also traps for the unwary). It would be a good idea to consult with local counsel before transferring interests in New Jersey real estate.
Sixth, my aunt left me real estate. How much tax do I owe? First, take a look at your aunt’s will to see how taxes are apportioned. If it’s determined that you must pay the New Jersey Inheritance Taxes, then calculate the tax based on the fair market value of the property as of your aunt’s death. If the property was worth $346,000, the inheritance tax imposed will equal $51,900. However, if you inherit the same property from your brother, the tax would be reduced to $35,310.
Seventh, why is there a tax if the property is worth less than 675,000? Two different concepts. The 675,000 number is the old exemption amount when New Jersey had an estate tax. The New Jersey Inheritance Tax applies to all transfers of tangible property and real estate valued at $500 or more.
Eighth, can my accountant prepare Form IT-NR? Possibly. Accountants that are familiar with the New Jersey Inheritance Tax can be a good choice if they often file these returns. Also consider having a tax attorney either prepare the form or work with your accountant, as certain factual situations may require interpretation and the taking and defending of certain positions with respect to the New Jersey Division of Taxation.