It is not unusual for someone in New Jersey to become the inheritor of real estate or other related assets. In fact, it is quite common that, when someone dies, their property is inherited by someone else. In this case, there are inheritance tax realities that should be considered ahead of time by all involved parties. After all, inheritance tax issues will affect the inheritor in a number of ways.
For instance, In the state of New Jersey, laws state that, depending upon the beneficiary “class” of the inheritor, the inheritor will have to pay a different amount in taxes once property has been transferred. The specific percentage depends upon whether the property is worth more or less than $700,000. This can result in significant taxes for the inheritor — a problem if he or she isn’t prepared to pay those taxes.
Other inheritance tax considerations relate to properties that are transferred before the benefactor has died. In these cases, there is a $5.34 million tax exemption upon such gifts; thus, the receiver of the gifted property would not have to pay any federal taxes. However, in New Jersey, if the property is received and the benefactor dies within three years of making the gift, the inheritor will still be subjected to the above-mentioned over/under $700,000 inheritance tax, regardless of the $5.34 million federal exemption.
Because of the complexities inherent in making decisions that will affect inheritance tax situations, it is best to go over any estate planning with all parties well before the assets are inherited. Doing so will alleviate any mysteries surrounding what will occur upon the death of the benefactor and will also prepare the inheritor. Consequently, he or she will not undergo a financial “shock” related to his or her inheritance.
Source: nj.com, “Your Money: The taxing truth about inheritances“, Karin Price Mueller, April 9, 2014