Am I exempt from paying inheritance tax in the Garden State? 

On Behalf of | Jun 18, 2021 | Estate Planning |

Until 2018, New Jersey was an expensive state to die in. New Jersey had not only one, but two “death taxes.” That all changed in 2018 with the revisions of New Jersey’s tax laws. When a person dies in the Garden State, the estate tax is no longer collected, nor required. 

However, friends and family of the deceased need to know that inheritance tax has been fully alive since 1892. Let’s take a look at the state’s requirements for inheritance tax to see who is, and isn’t, exempt.

What is inheritance tax?

Inheritance tax is a tax that is collected in New Jersey upon the transfer of assets from a deceased person to any individual, regardless of their state of residence. 

The rate of inheritance tax is based upon the relationship the person receiving the inheritance (beneficiary) has to the deceased. Here are the different classes:

  • Class A: These beneficiaries are exempt from paying inheritance tax. This group includes:
    • Wife, husband, or civil union partner
    • Parents or grandparents
    • Biological or adopted children
    • Stepchildren
    • Grandchildren
  • Class B: This classification was removed with the revision of tax laws in 2018, and no longer exists.
  • Class C: These beneficiaries are exempt from paying inheritance tax on the first $25,000 of inheritance. This group includes:
    • Siblings: Brothers or sisters of the deceased
    • Sons/Daughters-in-law: Spouses or civil union partners of the deceased’s children
    • However, beneficiaries in Class C who receive an amount that exceeds $25,000, are obligated to pay inheritance tax at the following rates:
      • 11% on any amount over $25,000 and up to $1,075,000
      • 13% on an amount up to $300,000
      • 14% on an amount up to $300,000
      • 16% on any amount over $1,700,000
  • Class D: Includes all beneficiaries that are not in Class A, C, or E. There are no exemptions from inheritance tax in Class D, and beneficiaries are obligated to pay at the following rates:
    • 15% on an amount up to $700,000
    • 16% on any amount over $700,000
  • Class E:  All beneficiaries in Class E are exempt from paying inheritance tax. This group includes charitable, political, or educational organizations that are tax-exempt under 501(c)(3) in the State of New Jersey.

If this information seems a little overwhelming, it is understandable. To avoid unnecessary taxation on your heirs, it’s recommended to have legal counsel on your side that is experienced in wills and estate planning in regards to New Jersey’s inheritance tax laws.