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Will my heirs be subject to the New Jersey inheritance tax?

On Behalf of | Mar 15, 2019 | Estate And Gift Tax Planning |

While New Jersey no longer has an estate tax, as of right now it is one of only a handful of states that still imposes an inheritance tax. This tax applies to any transfers of assets to certain (but not all) heirs once you pass away. And while inheritances worth $500 or less won’t be taxed, other inheritances will be subjected to the legally complex inheritance tax.

Whether the tax applied and how much is due depends on what “class” the heir falls under based on his or her relationship with the decedent. Class A heirs are exempt from the inheritance tax altogether. This includes spouses and children of the decedent, grandchildren and great-grandchildren of the decedent and parents and grandparents of the decedent. Class E heirs are also exempt from the inheritance tax. Class E heirs include charities, religious bodies, schools, hospitals, non-profit groups and the State of New Jersey itself.

Class C heirs are not exempt from the inheritance tax. This includes brothers, sisters, sons-in-law and daughters-in-law. The first $25,000 of the inheritance will not be subject to the inheritance tax. However, the next $1.075 million of the inheritance will be taxed at a rate of 11 percent. The next $300,000 following that is taxed at a rate of 13 percent, and the $300,000 following that is taxed at a rate of 14 percent. Finally, anything over $1.7 million will be taxed at a rate of 16 percent.

Class D heirs include all heirs that are not Class A heirs, Class C heirs or Class E heirs. The first $700,000 of their inheritance will be taxed at a rate of 15 percent, and there is a 16 percent tax rate for any amount over the initial $700,000.

As this shows, while some heirs are exempt from the inheritance tax, others could see a sizeable chunk of their inheritance go to the state. Whether or not this is fair is a matter to be argued. This post only provides general information on this important topic and does not provide legal advice. Ultimately heirs should understand whether the inheritance tax will apply to them, and if so, how much of their inheritance will be taxed and at what rate. Some may find the advice of an attorney familiar with estate and gift tax planning to be very useful in such situations.