Benjamin Franklin famously said nothing in life is certain, except for death and taxes. Had he been alive today, he could have been referring to New Jersey. As of January 1, 2018, it no longer levies an estate or inheritance tax, but that's not the case for many people who died in 2017 or their beneficiaries. Understanding the rules governing NJ inheritance tax will ensure that you make the right financial decisions related to your role as a beneficiary.
Looking For Information About Spouses
If you’re married, you can leave all your assets to your spouse free of charge. Spouses are exempt from paying inheritance tax, and if everything you own goes to your spouse in your will, New Jersey won’t tax your estate, either. However, a caveat exists. When you pass away, New Jersey immediately places a tax lien against everything you own so your executor can’t transfer or sell any assets without the state getting its tax cut. Your executor must file Form L-9 for any real estate you owned and Form L-8 for financial assets with the Division of Taxation to have the liens lifted so your spouse can inherit them.
Obtaining More Information About Other Individuals
Your children, parents, grandparents and grandchildren do not have to pay inheritance tax on anything you leave them. However, bequeathing to them does not avoid your estate having to pay taxes on the assets you leave behind. For those dying in 2017 with an estate worth more than $2 million, estate tax is due in New Jersey. Your stepchildren and adopted children are included among these Class A beneficiaries.
New Jersey places your siblings and in-laws in its Class C beneficiary category. The state now exempts the initial $25,000 of the amount you leave to any of these people, but beyond that, they have to pay a rate that may reach as high as 16 percent.
If you leave everything to the housekeeper who cared for you in your old age, she’s going to pay dearly in New Jersey. Only the first $500 is exempt from inheritance tax. She must pay 15 percent of everything worth up to $700,000, and 16 percent on any value over that. She’s considered a Class D beneficiary. This category catches everyone who doesn’t fall into Classes A or C. There is no Class B in New Jersey. Friends, significant others and business associates are all Class D beneficiaries.
Of course, if you choose to name the state of New Jersey as one of your beneficiaries, the state doesn't impose a NJ death tax. You can also leave everything to charity free of charge.
Reporting Your Inheritance Transactions
If you have profited from property or asserts transferred to you as part of an inheritance, you can use Form 1040, specifically Schedule D, in order to properly document this information.
- New Jersey Division of Taxation: General Information (PDF)
- Patel Law Offices; New Jersey Inheritance Tax; Parag Patel; April 2010
- “The Star Ledger”; New Jersey Has Inheritance and Estate Tax; Karin Price Mueller; September 2010
- Retirement Living Information Center; Taxes By State; January 2011
- State of New Jersey Division of Taxation
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