Imagine your grandmother has taken out a joint bank account in both your and her names. She put $50,000 in the account and told you that when she passes away, the money will be yours. Sadly, this day has come and you're experiencing the mixed blessings of having some much-needed extra money on hand while also experiencing the emotions of losing your dear grandmother. You also have a very important question on your mind: Do you have to pay taxes on this money?
The Tax Cuts and Jobs Act, which became law at the beginning of January 2018, has created some tax law changes you should know about. The law raised the federal estate and gift tax exemption to $11.2 million. On the same day, a significant change took effect regarding New Jersey estate law. The New Jersey estate tax was completely done away with on this date.
All that said, the New Jersey inheritance tax continues to be in effect. This means, that when it comes to jointly owned bank accounts, there is a likelihood that the money you receive will be subject to taxation. When a grandmother leaves money to a grandchild, the tax rate for the grandchild will be 15 to 16 percent. Even in the case of a jointly held account -- the money that the grandmother put into the account will be subject to taxation. Meanwhile, if the grandaughter can show that he or she deposited money into the account, then that money can be retained tax-free.
It's important to fully understand tax laws as they apply to New Jersey estates, especially if you're the recipient of an inheritance. The more you understand tax laws, the better you'll be able to save money and avoid potential issues or problems later on down the road.
Source: NJ.com, "Joint bank accounts and inheritance taxes," Karin Price Mueller, Feb. 08, 2018