It has been said, “…in this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin made this statement on November 13th, 1789, and most would agree the statement still rings true today. Both of these unpleasant certainties must be considered when preparing your estate plan.
In addition to Federal Estate Taxes, the State of New Jersey imposes an Inheritance Tax. The New Jersey Inheritance Tax is not a tax on the estate but rather a tax on the transferee's right of succession to property transferred by a decedent. As a practical matter, the distinction may not make a difference, as the personal representative in charge of the estate is required to deduct this tax prior to distribution.
Governing Law
The New Jersey Transfer Inheritance Tax Law is governed by the New Jersey Statutes, chapters 54:33through 54:37 and in 54:38A. Governing Rules and Regulations adopted in 2018 appear in the New Jersey Administrative Code at N.J.A.C 18:26-1.1 et seq.
In the Beginning
The first Inheritance tax law in New Jersey, called the Collateral Inheritance Tax Act, was passed in 1892 and imposed a 5% tax on transfers to collaterals and nonrelatives. In 1909 the Transfer Inheritance Tax was enacted, and the Transfer Inheritance Tax Bureau was created. Today this agency is called the Transfer Inheritance and Estate Tax Branch.
Our laws are ever changing, and this initial tax to collaterals and nonrelatives was extended to transfers to a family member, including, but not limited to, spouse, children, parents and siblings. Over the years, deductions, credits, and exemptions were carved out and codified, and rates and classifications were created with large changes in 1926, 1962 and 1985. With phase outs and modifications, the amendments to the Transfer Inheritance Tax Act in 1985 remains largely in place.
The Law in 2021
The New Jersey Inheritance Tax Law imposes a graduated tax ranging from 11% to 16% on the transfer of real and personal property with a value of $500 or more to certain classes of beneficiaries. Where a decedent lived at the time of his or her death, and what relationship the beneficiary has to the decedent will determine the tax due on the transfer.
A decedent's residence can have significant tax consequences
For a resident decedent, that is, a person who was a resident of New Jersey at their time of death, transfers of real and personal property located in New Jersey as well as intangible personal property wherever located, are subject to tax. For non-resident decedents, only transfers of real or tangible property located in New Jersey are subject to tax.
Beneficiary Classes and Rates
Beneficiary Classes are divided into four categories. Class A, C, D and E. Only beneficiaries in Classes C and D are subject to Inheritance Tax.
Class A Beneficiaries
Class A Beneficiaries include: Father, mother, grandparents, spouse, domestic partner as defined in N.J.S. 26:8A-4, partner in a civil union couple as defined in N.J.S. 37:1-29, child or children of the descendent, adopted child or children of the descendent, issue of any child or legally adopted child of the decedent, mutually acknowledged child or step-child of the decedent, and certain children of a civil union partner or domestic partner conceived by artificial insemination.
Class C Beneficiaries
Class C Beneficiaries include: Brother or sister of the decedent, including half-brother and half-sister, wife or widow of a son of the decedent, or husband or widower of a daughter of the decedent, or the civil union partner or the surviving civil union partner of a son or daughter of the decedent.
Class D Beneficiaries
Class D Beneficiaries include every other transferee, distribute or beneficiary who is not included in Classes A, C or E.
Class E Beneficiaries
Class E Beneficiaries include exempt entities and organizations, including the State of New Jersey or any of its political subdivisions, educational institutions, churches, hospitals, orphan asylums, public libraries, and certain other non-profit agencies.
Tax Amount
On transfers from estates of decedents dying on or after July 1, 1988:
Class A beneficiaries are exempt from tax.
Class C beneficiaries are exempt from the first $25,000.00 transferred. The tax rates on range and increase on the amounts in excess of $25,000.00 to over $1,700,000.00. Specifically, $25,000.00 to $1,075,000.00 (to $1,100,000.00) is taxed at 11%; the $300,000.00 (to $1,400,000) is taxed at 13%, the next $300,000.00 (to $1,700,000.00) is taxed at 14% and over $1,700,000.00 is taxed at 16%.
Class D beneficiaries are taxed at 15% for the first $700,000.00 and taxed at 16% for any amount exceeding $700,000.00.
Class E beneficiaries are exempt from tax.
Exemptions and Deductions
In addition to the exemptions above, certain types of transfers are exempt from tax including, but not limited to transfers under $500.00, life insurance paid to a named beneficiary and certain charitable transfers.
Contact Hartmann Law
For more information about New Jersey Inheritance Tax or to discuss your Estate Planning needs, contact Hartmann Law today.
