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What should you know about New Jersey’s estate and inheritance taxes?

| Jan 8, 2021 | Tax Planning |

As you go about creating and implementing your estate plan so as to minimize your estate tax exposure and your heirs’ inheritance tax exposure, you likely think in terms of the federal taxes. You should not forget, however, that New Jersey taxes come into play as well. 

The New Jersey Division of Taxation explains that the state imposes no estate taxes on your estate if you die on or after Jan. 1, 2018. State law does, nevertheless, assess inheritance taxes on some of your heirs. 

For estates of decedents who died between Jan. 1, 2017, and Jan. 1, 2018, New Jersey assesses an estate tax on estates exceeding $2 million. This progressive tax ranges from 0% to 16% depending on the size of the estate. 

Inheritance tax classes

New Jersey law provides for the following four active inheritance tax classes depending on the heir’s relationship to you: 

  1. Class A: spouse, domestic partner, civil union partner, child, parent, grandparent, grandchild, stepchild 
  2. Class C: sibling, child’s spouse or surviving spouse, child’s civil union partner or surviving civil union partner 
  3. Class D: any person not listed in Classes A, C or E 
  4. Class E: exempt organizations, i.e., qualified charities, religious, educational, medical institutions, nonprofit benevolent or scientific institutions and the State of New Jersey 

Inheritance tax amounts

Class A heirs pay no New Jersey inheritance taxes. 

Class C heirs pay New Jersey inheritance tax at the following rates: 

  • First $25,000: no tax 
  • Next $1,075,000: 11% 
  • Next $300,000: 13% 
  • Next $300,000: 14% 
  • Anything over $1,700,000: 15% 

Class D heirs pay 15% on the first $700,000 and 15% on any amounts over $700,000.