There are a few states that collect inheritance taxes after someone dies, and New Jersey is among them.
If you are an heir to a deceased New Jersey resident, will you have to pay an inheritance tax on the assets you receive? Not necessarily.
The inheritance tax
Also called the death duty, payment of an inheritance tax falls to certain classes of heirs. The amount is based on the sum value of the decedent’s estate as well as the relationship an heir had with the person who died. In New Jersey, beneficiaries pay the inheritance tax whereas the estate tax comes from assets prior to distribution. Stocks, bonds and similar assets are subject to inheritance tax, but life insurance proceeds are not. Those proceeds go directly to named beneficiaries.
The state of New Jersey groups the beneficiaries of an estate into different categories:
- Class A: spouse or civil union partner, children and parents of the decedent
- Class C: brother, sister, son-in-law or daughter-in-law
- Class D: other beneficiaries who do not fall into any other class
- Class E: nonprofits, educational institutions, hospitals and similar organizations
Both Class A and Class E recipients are exempt from paying inheritance tax. Class C beneficiaries are exempt for the first $25,000 but thereafter face a tax of 11 to 16 percent based on value. They will, for example, pay a tax of 16 percent on assets that are over $1.7 million. New Jersey taxes Class D recipients at the rate of 15 percent for the first $700,000 and 16 percent for assets over that amount. Note that there is no Class B: The state deleted it from the list in 1963.
A review of the options
If you are preparing your will and considering the issue of inheritance taxes, you do not want to make a mistake that could adversely impact your heirs and what you intend for them to receive after your passing. Explore your legal options. A well-developed estate plan can resolve such issues and help you achieve your objectives.