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 tax, but that's not the case for many people who died in 2017 or their beneficiaries. There's also an inheritance tax and understanding the rules governing the NJ inheritance tax will ensure that you make the right financial decisions related to your role as a beneficiary.
Certain beneficiaries are exempt from the inheritance tax in the state of NJ. Others will be required to pay a tax on the inheritance based on the classification given them by the state.
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. 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
- 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
- Nolo: New Jersey Inheritance Tax
- State of New Jersey Division of Taxation: Inheritance Tax
- Indiana Department of Revenue. "Inheritance Tax Information." Accessed Aug. 1, 2020.
- Pennsylvania Department of Revenue. "Inheritance Tax." Accessed Aug. 1, 2020.
- New Jersey Division of Taxation. "Inheritance Tax Beneficiary Classes." Accessed Aug. 1, 2020.
- State of New Jersey Inheritance and Estate Tax Branch. "Inheritance Tax Rates." Accessed Aug. 1, 2020.
- Protective Life Corporation. "Inheritance Tax vs. Estate Tax." Accessed Aug. 1, 2020.
- American College of Trust and Estate Counsel. "State Death Tax Chart." Accessed Aug. 1, 2020.
- Tennessee Department of Revenue. "Inheritance Tax." Accessed Aug. 2, 2020.
- New Jersey Division of Taxation. "Inheritance and Estate Tax." Accessed Aug. 1, 2020.
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.