Even in the case that you are receiving a bequest that you fully expected, it can bring financial questions and worry that you may not have anticipated. There’s nothing to be afraid of! Here is a straightforward explanation of the New Jersey inheritance tax – what it is, how to manage it, etc.
But before we get into it… We are financial advisors in Morristown, NJ, providing financial advice for New Jersey residents as well as folks across the country. Before we get started, you may want to check out these New Jersey finance blogs we’ve written, if they apply to you:
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Does New Jersey have an inheritance tax?
Yes, there is inheritance tax in New Jersey.
Before we go any further, let’s clarify what that even is.
Let’s take a scenario between you and your hypothetical Auntie Beth from Trenton, New Jersey. Auntie Beth sadly passes away, making her the “decedent.” She has a jewelry box full of Rolex watches. Those Rolexes have to go somewhere, and in her will she’s named you as the “beneficiary.”
What is essentially happening here is a transfer of ownership. Assets are passing from one person to another, and when that happens in the state of New Jersey there is a tax imposed on the beneficiary.
That’s…terrifying, you say?
But wait! Don’t get scared!
So how much tax is this going to be???
First of all, let’s be clear: there is no way to predict how much you are going to pay the state of New Jersey in inheritance tax. The amount of the tax depends on a few factors, according to the New Jersey Division of Taxation.
- How you are related to Auntie Beth
- How much the Rolex watches were worth when she died
- When Auntie Beth passed away
- If she was actually living in New Jersey at the time that she passed
Let’s go over each of these in details but before we do that, just a quick reminder. We’re not lawyers – we’re financial advisors, like we said – so this guidance here is general in nature. For specific recommendations that would apply directly to someone’s personal situation, the best thing would be to contact a CPA or tax attorney.
And now let’s get onto it!
How you are related to Auntie Beth
In general, if you were a lineal relative, such as a spouse, child, or parent of Auntie Beth, or a charity that the bequest is being passed to, no NJ inheritance tax would be applied, according to The CPA Journal.
If you were a sibling, you’d pay 11% on the first $1,075,000 above the first $25,000 you inherited. The tax rate gradually goes up from there. But if you were a more distant relative or non-family member (remember you are theoretically a niece or nephew in this blog), the first $500 is free of tax and then you would owe 15% on the next $700,000 and 16% on any amount over $700,000 (Ibid).
What the Rolexes were worth
The tax is levied on the market value of your asset at the time of the decedent’s death, whether it may be a Rolex watch or a business.
Assets that you are liable to pay inheritance tax on may include:
- Closely held businesses
- Real property you own in the state of New Jersey
- Personal property
Please note that certain assets, such as life insurance proceeds, assets held in certain trusts, pensions, and annuities are exempt from inheritance tax in New Jersey.
When Auntie Beth passed
You must file and pay tax on the inherited assets within eight months of the decedent passing away (NJ Division of Taxation).
Where Auntie Beth lived
Please note that as long as Auntie Beth lived in New Jersey (we mentioned she lived in Trenton, remember?) there must be a tax paid on those assets you are inheriting from her, even if you don’t live in New Jersey yourself.
If Auntie Beth were a legal resident of New Jersey, but if she happened to be living in (let’s say) Israel at the time she passed, her assets may or may not be subject to the inheritance tax. Rules on resident and non-residents decedents are summarized here.
A word about the New Jersey estate tax exemption 2023
People often confuse the New Jersey inheritance tax with the estate tax exemption. There will be no tax levied on estate proceeds from any New Jersey resident who dies after January 1, 2018.
It used to be the case that the assets belonging to a New Jersey resident who died would be subject to the higher of 1) an estate tax or 2) inheritance tax. However, as estate tax no longer exists in New Jersey, this is no longer the case.
HELP – I have no idea how to manage this confusing NJ inheritance tax!
We hope you’ve enjoyed our blog on what you need to know about inheritance tax in New Jersey. While there are certain factors such as tax laws that are beyond your control, it certainly is possible to create a financial plan that will allow you to manage the payment of these taxes over time.
We are financial advisors in Morristown, NJ serving the local community and beyond. If you have questions about your Pfizer retirement benefits, retiring in New Jersey, moving there, affording to live there, or (like us) are just plain old Bruce Springsteen fans, reach out and send us a message.
Lynch, James. August 2021. The CPA Journal. The State of the Inheritance Tax in New Jersey. https://www.cpajournal.com/2021/08/23/the-state-of-the-inheritance-tax-in-new-jersey/
NJ Treasury. Division of Taxation. Inheritance and Estate Tax. https://www.state.nj.us/treasury/taxation/inheritance-estate/inheritance.shtml
NJ Treasury. Division of Taxation. Transfer Inheritance Tax Overview. https://www.state.nj.us/treasury/taxation/inheritance-estate/filingrequirements-inheritance.shtml
State of New Jersey Department of the Treasury. (July 28, 2021). Transfer Inheritance Tax: Statistical Report for Tax Years 2015 – 2017. Office of Revenue and Economic Analysis. https://www.nj.gov/treasury/economics/documents/pdf/stats/Transfer-Inheritance-Tax-Statistical-Report-TY-2015-2017.pdf