New Jersey Death Taxes: Two for the Price of One

By Peter Klenk, Esq.

Many states levy a transfer tax at the death of their citizens. This tax, often called an Inheritance Tax or Estate Tax, is a tax on the assets of the deceased and is typically paid by the executor prior to making the final distribution of assets to the beneficiaries. If the beneficiary receives the assets directly, say by being named as a beneficiary at death on a bank account, the state often sends the bill directly to the beneficiary.

New Jersey is one of those lucky places where there are two taxes; both a New Jersey Estate Tax and a New Jersey Inheritance Tax. These taxes are both transfer taxes at death, but have different rates and tax family members in different manners.

The New Jersey Transfer Inheritance Tax

If a transfer at death from the deceased to a beneficiary exceeds $500.00, the New Jersey Inheritance Tax imposes a tax, at graduated rates. The payment and the inheritance tax return are due within 8 months of the death and are levied on the transfer of real or personal property. Exempt from payment of this tax are the decedent’s surviving spouse, the decedent’s surviving civil union partner, parents, grandparents, children, stepchildren or grandchildren. Because this list includes the most likely beneficiaries, often the New Jersey Inheritance tax is avoided

The New Jersey Transfer Estate Tax

At one time the Federal Estate Tax gave a credit for death taxes paid to states, allowing states to essentially take part of the amount due to the IRS from the Federal Estate Tax. This sharing or, “sponging” as it was termed, ended in 2002. Many states then decided to retire this tax, but New Jersey instead decided to essentially freeze time as if it were still December 31, 2001 (the day before this “sponging” ended). Thus, the New Jersey Estate tax has the executor calculate the amount New Jersey would have received if it were still 12/31/01, and they take that tax even though it is no longer a portion of the Federal Tax, and is really a new tax. Unlike the Inheritance Tax, this tax has no exemption for descendants.

A New Jersey estate tax return must be filed within 9 months of the decedent’s death if the decedent’s gross estate plus adjusted taxable gifts as determined in accordance with the provisions of the Internal Revenue Code in effect on December 31, 2001 exceeds $675,000.

More detailed information about the New Jersey Estate Tax and Inheritance Tax maybe found at our website, Klenklaw.com. Our firm focuses exclusively on Wills, Trusts and Estates. Should you have any questions surrounding New Jersey Estate or Inheritance Tax, please contact us.