In addition to a state inheritance tax, New Jersey also imposes a separate state estate tax which has been decoupled from the federal estate tax laws. What this means for New Jersey residents is the following:
A New Jersey estate tax return, Form IT-Estate, must be filed if the decedent's gross estate plus adjusted taxable gifts exceeds $675,000.
The estate tax is either the maximum credit for state inheritance, estate, succession or legacy taxes allowable under the provisions of the Internal Revenue Code in effect on December 31, 2001 ("Form 706 Method"), or an amount determined pursuant to the Simplified Tax System prescribed by the Director, Division of Taxation ("Simplified Form Method"). The Form 706 Method must be used if the taxpayer is required to file a federal estate tax return, IRS Form 706. If the taxpayer isn't required to file IRS Form 706, then, in addition to the Form 706 Method, the Simplified Form Method may be used provided that it produces a tax liability similar to the Form 706 Method.
Form IT-Estate must be filed and any tax due must be paid within nine months of the decedent's death, or nine months plus 30 days if the Form 706 Method is used.
An extension of time to file Form IT-Estate may be requested, however, even if an extension is granted it won't delay the time for payment of any tax due.
The Form 706 Method requires that Form IT-Estate be prepared and filed along with a 2001 IRS Form 706. This is in addition to IRS Form 706 for the year of the decedent's death if one is required to be filed.
Federal estate tax laws don't have a provision providing a deduction for property passing to a domestic partner. However, if the decedent was a partner in a civil union and died on or after February 19, 2007, and was survived by his or her partner, then a marital deduction equal to that permitted a surviving spouse under the provisions of the Internal Revenue Code in effect on December 31, 2001, is permitted for New Jersey estate tax purposes.
The tax rate is a progressive rate that maxes out at 16% for the amount above $10,040,000.
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 spouse (or civil union or domestic partner for certain years) and the value is more than $675,000, then your estate may owe a New Jersey estate tax. Up next, New York estate taxes.