Benjamin Franklin famously said nothing in life is certain, except for death and taxes. Had he been alive today, he could have been referring to New Jersey. As of 2011, it was one of only two states to levy taxes both on an estate and on heirs receiving bequests from the estate. Whether you want to leave everything you've earned and worked for to a close relative or to your best friend, they will likely have to share it with New Jersey's Division of Taxation.
If you're married, you can leave all your assets to your spouse free of charge. Spouses are exempt from paying inheritance tax, and if everything you own goes to your spouse in your will, New Jersey won't tax your estate, either. Since New Jersey enacted its Civil Union Act in December 2006, this includes civil union partners. However, a caveat exists. When you pass away, New Jersey immediately places a tax lien against everything you own so your executor can't transfer or sell any assets without the state getting its tax cut. Your executor must file Form L-9 for any real estate you owned and Form L-8 for financial assets with the Division of Taxation to have the liens lifted so your spouse can inherit them.
Your children, parents, grandparents and grandchildren do not have to pay inheritance tax on anything you leave them. However, bequeathing to them does not avoid your estate having to pay taxes on the assets you leave behind. As of 2011, if your estate is worth more than $675,000, an estate tax is due in New Jersey. Your stepchildren and adopted children are included among Class A beneficiaries.
New Jersey places your siblings and in-laws, both through marriage and civil union, in its Class C beneficiary category. The state exempts the first $25,000 you leave to any of these people, but beyond that, they have to pay 11 percent of any bequest with a value of up to $1,075,000, and as much as 16 percent on bequests of $1.7 million or more.
If you leave everything to the housekeeper who cared for you in your old age, she's going to pay dearly in New Jersey. Only the first $500 is exempt from inheritance tax. She must pay 15 percent of everything worth up to $700,000, and 16 percent on any value over that. She's considered a Class D beneficiary. This category catches everyone who doesn't fall into Classes A or C. There is no Class B in New Jersey. Friends, significant others and business associates are all Class D beneficiaries.
Of course, if you choose to the state of New Jersey as one of your beneficiaries, the state doesn't impos an inheritance tax on itself. You can also leave everything to charity free of charge.
- New Jersey Division of Taxation: General Information (PDF)
- Patel Law Offices; New Jersey Inheritance Tax; Parag Patel; April 2010
- "The Star Ledger"; New Jersey Has Inheritance and Estate Tax; Karin Price Mueller; September 2010
- Retirement Living Information Center; Taxes By State; January 2011
- Einhorn, Harris, Ascher, Barbarito, Frost & Ironson, P.C.; Tax Implications of New Jersey's New Civil Unions; Gary R. Botwinick (PDF)
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