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What you should know about New Jersey’s inheritance tax

On Behalf of | Mar 21, 2024 | Tax Planning

New Jersey is one of just six states that has an inheritance tax. Whether someone may be assessed the tax depends on where they live – not where the person who left the inheritance lived. Therefore, the fact that you live in New Jersey doesn’t affect whether a beneficiary will have to pay an inheritance tax if you gift them something via your estate. That determination will depend on where they live.

Inheritance tax is collected on all types of assets, including money and property. Whether a beneficiary has to pay inheritance tax and, if so, how much, generally depends on how closely they’re related (if they are) to the deceased and the value of the assets at the time of the death.

What beneficiaries are exempt from the tax?

Most relatives are exempt from inheritance tax if they reside in New Jersey. So are domestic and civil union partners. Interestingly, siblings are not. The rate at which they are taxed depends on the value of the assets. There’s no tax on the first $25,000. Above that, they’re taxed at a graduated rate from 11% to 16%. More distant relatives, including aunts, uncles, nieces and nephews, are taxed 15% or 16% on all inheritances

Many other common types of beneficiaries are also exempt from this tax if they reside in New Jersey. These include most charities as well as religious, educational, medical and scientific institutions and other types of “non-profit benevolent or scientific institutions.”

How can you help beneficiaries avoid the tax?

If you’re going to be developing your estate plan this year and some of your intended beneficiaries are here in New Jersey, it’s worthwhile to learn more about the state’s inheritance tax – particularly if you’re leaving them considerable assets. There may be ways to help them avoid it – for example by gifting assets while you’re still around or transferring your estates via certain kinds of trusts.

However you decide to pass along your assets, you’ll want to consider what kind of tax effect they can have on your beneficiaries. Having experienced estate planning guidance will help.