Those creating their estate plans or those dealing with executing a loved one's plan should understand how New Jersey handles estate taxes and what to expect. Many heirs may not be aware that they may have to pay taxes on their inheritances, and how this is handled depends on the way the estate plan was set up.
Generally speaking, an estate tax is a tax on the value of the deceased's assets. In the state of New Jersey, there are two taxes that may apply to an estate: the transfer inheritance tax and the estate tax. The transfer inheritance tax is the main tax, and the estate tax is applied above the inheritance tax for heirs living within the state.
The amount of the transfer inheritance tax depends on the relationship between the beneficiary and the deceased as well as the value of the property. The immediate family of the decedent, including parents, grandparents, children, grandchildren, spouses and domestic partners, are all exempt from the transfer inheritance tax. Other descendants will be taxed from 11 to 16 percent of the value of the assets, although there are some instances where the first $25,000 of the inheritance is exempt from the tax.
As with most laws, there are several exceptions to how the inheritance and estate taxes apply. Navigating the financial aspect of estate administration can be a challenge for those unfamiliar with the New Jersey laws and guidelines. An estate planning attorney can help executors and heirs understand what is expected of them and can also help those still in the estate planning stages make their decisions with the tax burden in mind.
Source: State of New Jersey Department of the Treasury, "Inheritance and Estate Taxes Overview" accessed Feb. 24, 2015