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Estate Taxes by State - Understanding New Jersey Inheritance Taxes

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  • inheritance taxes
  • april 29
  • If you live in New Jersey, then you're lucky enough to live in one of the two states that collects both a separate state inheritance tax and estate tax (the other is Maryland). Currently the following rules apply with regard to the New Jersey inheritance tax:

    • Charitable organizations are exempt from the tax.
    • All other beneficiaries are broken down into three categories with regard to the tax:
      • Class A beneficiaries. No tax is imposed on the following beneficiaries - spouses, civil union partners, domestic partners, parents, grandparents, and descendants (including those legally adopted).
      • Class B beneficiaries. This class no longer exists.
      • Class C beneficiaries. For the following beneficiaries - siblings, spouse or widow(er) of a child of the decedent, and civil union partner or surviving civil union partner of a child of the decedent - the first $25,000 is exempt and transfers above this amount are taxed at 11%-16%.
      • Class D beneficiaries. For all other beneficiaries, the first $500 is exempt and transfers above this amount are taxed at 15%-16%.
    • Life insurance paid to a named beneficiary is exempt from the tax.
    • An inheritance tax return, Form IT-R for residents or Form IT-NR for nonresidents, must be filed and the tax paid within eight months after the decedent's death.
    • While no inheritance tax return is required to be filed for Class A beneficiaries, Form L-8 may be used to secure the release of bank accounts, stocks, bonds and brokerage accounts. If there was any real property in the name of the decedent, Form L-9, or Form L-9NR for a nonresident decedent, may be filed to release the State's lien on the real property.

    This information is courtesy of the New Jersey Division of Taxation.

    The bottom line - if you're a New Jersey resident and your estate is passing to someone other than your immediate family, or if you're a nonresident who owns real estate and/or tangible personal property located in New Jersey and it's not passing to your immediate family, then your beneficiaries may owe a New Jersey transfer inheritance tax. Up next, New Jersey estate taxes.

    For a summary of the inheritance tax laws of the seven states that collect inheritance taxes (in addition to New Jersey - Indiana, Iowa, Kentucky, Maryland, Nebraska and Pennsylvania), refer to the State Inheritance Tax Chart.

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