When doing estate planning, it is important to remember that even those who are not liable for federal estate taxes, you still may be liable for state taxes at death. State taxes at death may be either estate taxes, inheritance taxes or both.
Some states just impose an estate tax, though exemption amounts range from $338.333 to $5 million. Some states only collect an inheritance which are taxes owed by heirs of the estate. These taxes usually increase for beneficiaries the more removed they are from the deceased. One of the unique things about New Jersey in comparison to other states is that there are both estate and inheritance taxes to take into account when doing estate planning. Maryland also has both types of taxes, whereas a number of states have neither inheritance nor estate taxes.
In New Jersey, estates exceeding $675,000 are taxed, and the maximum rate is 16 percent. There is also an inheritance taxes on beneficiaries who are not a spouse, parent, child, or other lineal descendent of the deceased. New Jersey's inheritance tax also maxes out at 16 percent.
New Jersey is sometimes viewed as one of the worst places to die because of the way it imposes taxes on the deceased. There is some truth to this for the moderately wealthy, but for those whose estates do not exceed the exemption amount, this is less of an issue.
New Jersey residents engaged in estate planning should be aware of the possibility of paying taxes in multiple jurisdictions. Owing taxes to multiple states can be an issue where the deceased owned property, real or tangible, outside their primary state of residence. Intangible property like stocks and bonds is taxed in the state the deceased legal resided in at the time of their death, so the physical location of investments doesn't' matter.
Careful planning will ensure that your estate is not caught off guard by the taxes it owes at your death.
Source: Investment News, "Don't Die in New Jersey," Liz Skinner, November 6, 2011.