Kara Sears
New Jersey's tax laws can be complex, and the state imposes both inheritance and estate taxes on resident decedents. The New Jersey Estate Tax was phased out in two parts, with the tax exemption capped at $675,000 for deaths occurring before January 1, 2017, and the tax eliminated entirely for deaths after January 1, 2018. The inheritance tax, on the other hand, is based on the beneficiary's relationship to the decedent, with four distinct classes. Class A beneficiaries, which include the decedent's spouse, children, and grandchildren, are exempt from inheritance taxes. Understanding these tax laws is crucial for effective estate planning, and working with a trusted advisor can help protect assets and beneficiaries.
| Characteristics | Values |
|---|---|
| Estate tax in New Jersey | Eliminated in 2018 |
| Inheritance tax in New Jersey | Applicable |
| Inheritance tax beneficiaries | Class A, Class C, Class D, and Class E |
| Class A beneficiaries | Spouse, civil partner, children, grandchildren, great-grandchildren, step-children, parents, grandparents |
| Class A beneficiary tax | Exempt |
| Class C beneficiaries | Siblings, half-siblings, son/daughter-in-law, widow/widower of a deceased child |
| Class C beneficiary tax | 11% tax on amounts over $25,000 up to $1,100,000 |
| 13% on amounts over $1,100,000 up to $1,400,000 | |
| Class D beneficiaries | All other beneficiaries |
| Class E beneficiaries | Tax-exempt charities and government bodies |
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What You'll Learn
New Jersey Estate Tax abolished in 2018
Estate planning can be a complex process, and it's important to understand the tax implications for your state. In the case of New Jersey, the state's estate tax law has undergone some changes in recent years, with the New Jersey Estate Tax being abolished as of January 1, 2018. This means that if someone passed away on or after that date, their estate does not owe any taxes to the state of New Jersey, regardless of its size.
The New Jersey Estate Tax was originally established in 1934 and was based on the overall size of the estate. It did not consider the distribution of assets beyond exemptions for spouses and charities. Over the years, the tax exemption amount changed, with a cap of $675,000 in place for resident decedents dying on or before December 31, 2016. The exemption increased to an unlimited amount for resident decedents dying on or after January 1, 2017, but before January 1, 2018.
While the New Jersey Estate Tax has been abolished, it's important to note that inheritance taxes are still applicable in the state. The New Jersey Inheritance Tax is levied on the amounts that a beneficiary receives, and it is based on the relationship between the deceased and the beneficiary. The tax rates vary depending on the beneficiary's classification, with certain close relatives, such as spouses, children, and grandchildren, being exempt from inheritance taxes.
Although there is no longer an estate tax at the state level in New Jersey, residents may still need to pay federal estate taxes on large estates. As of 2025, the federal government imposes an estate tax on estates valued at over $13.99 million for individuals or $27.98 million for married couples. It's always recommended to consult with a financial advisor or tax professional to navigate the specific tax obligations for your situation.
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Inheritance Tax applies to residents and non-resident property owners
New Jersey has two types of inheritance tax: resident and non-resident. The type of tax owed depends on where the person who died (the decedent) was legally living at the time of their death. If the decedent was not a resident of New Jersey, there is no New Jersey estate tax due.
The New Jersey Estate Tax was phased out in two parts. Firstly, on December 31, 2016, the Estate Tax exemption was capped at $675,000. Secondly, on or after January 1, 2017, but before January 1, 2018, the New Jersey Estate Tax was no longer imposed for individuals who died on or after that date.
The inheritance tax is a tax on a beneficiary's right to receive property from a decedent. Any property, or income from property, that a beneficiary uses or that a decedent transfers to a recipient is subject to the New Jersey Inheritance Tax. The inheritance tax is calculated by the value of the asset transferred, less any available deductions or exemptions, and the relationship between the beneficiary and the decedent.
The New Jersey inheritance tax system separates beneficiaries into four distinct classes: Class A, Class C, Class D, and Class E. Class A includes the decedent's spouse, civil union partner, child/children, grandchild/grandchildren, great-grandchild/great-grandchildren, step-children, mother, father, or grandparents. Bequests/distributions to Class A beneficiaries are exempt from New Jersey Inheritance Taxes. Class C includes the decedent's sibling(s), half-sibling(s), son-in-law(s), daughter-in-law(s), widow of a deceased son, and widower of a deceased daughter. Bequests/distributions to Class C beneficiaries are taxed as follows: 11% tax on any amount over $25,000 up to $1,100,000 (no tax below $25,000) and 13% on any amount over $1,100,000 up to $1,400,000. Class D includes every other beneficiary. Class E includes tax-exempt charities and governmental bodies, such as the State of New Jersey and any political subdivision, educational institution, church, hospital, and library.
The New Jersey inheritance tax applies to residents of New Jersey. It also applies to non-residents of New Jersey who own real or personal tangible property located in New Jersey. Real property includes real estate: shore homes, rental properties, etc. Personal property refers to any movable property.
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Four beneficiary classes for tax purposes
New Jersey is one of the few states that collects an inheritance tax. The state abolished its separate estate tax in 2018, but inheritors are still classified into four groups, each with different tax rules. Here are the four beneficiary classes for tax purposes:
- Class A beneficiaries: This class includes immediate family members such as spouses, domestic or civil partners, children (including stepchildren and adopted children), grandchildren, parents, and grandparents. Class A beneficiaries are exempt from inheritance tax.
- Class C beneficiaries: This class comprises siblings and in-laws (sons- or daughters-in-law). The first $25,000 of inheritance is tax-free, with amounts above $25,000 taxed at rates starting at 11% and capping at 16%. The specific rates vary depending on the amount inherited.
- Class D beneficiaries: This class includes all other individuals who are not classified as Class A, C, or E beneficiaries. This includes nieces, nephews, significant others, cousins, and friends. Class D beneficiaries are exempt from tax on the first $500, but amounts above $500 are taxed between 15% and 16%.
- Class E beneficiaries: This class encompasses non-profit and charitable organizations, such as churches, hospitals, universities, schools, and other educational or religious institutions. Class E beneficiaries are fully exempt from inheritance tax.
It is important to note that out-of-state real estate is excluded from inheritance tax calculations in New Jersey, as are life insurance proceeds to a named beneficiary. Additionally, certain exemptions exist regardless of the beneficiary's classification, such as payments from specific retirement systems and certain annuities payable by the US government.
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Class A beneficiaries are exempt from Inheritance Tax
In New Jersey, inheritors are classified into different groups based on their family relationship to the deceased. Class A beneficiaries are exempt from paying inheritance tax. This group includes the deceased person's:
- Spouse
- Domestic partner
- Parent
- Grandparent
- Child
- Grandchild
Class A beneficiaries are not required to pay any inheritance tax on the assets they receive from the deceased. If no tax is owed, a Class A beneficiary can file an Affidavit for Real Property Tax Waiver. If the waiver is granted, they are not required to file an inheritance tax return.
It is important to note that New Jersey's inheritance tax is separate from its estate tax. The state of New Jersey eliminated the estate tax for individuals who died after January 1, 2018. However, the inheritance tax still applies and is based on the relationship between the beneficiary and the deceased, as well as the value of the assets transferred.
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Spouses exempt from Inheritance Tax
In New Jersey, the estate tax was phased out in two parts. For resident decedents who died on or before December 31, 2016, the estate tax exemption was capped at $675,000. On January 1, 2017, the estate tax exemption was raised to $2 million. Then, on January 1, 2018, the New Jersey Legislature eliminated the estate tax for anyone who dies on or after that date.
Spouses are generally exempt from paying inheritance tax in New Jersey. According to the state's inheritance tax classes, a surviving spouse or surviving civil union partner of a child of a decedent falls under Class C. Class C beneficiaries are taxed at 11% on any amount in excess of $25,000 up to $1,100,000, and at 13% on any amount in excess of $1,100,000 up to $1,400,000. However, there is no tax on amounts below $25,000.
It's important to note that the inheritance tax is separate from the estate tax. The inheritance tax is imposed on a beneficiary's right to receive property from a decedent. Any property or income from property that a decedent transfers to a recipient, or that a beneficiary uses, is subject to the New Jersey Inheritance Tax. The tax is calculated based on the value of the asset transferred, less any available deductions or exemptions, and the relationship between the decedent and the beneficiary.
While spouses are generally exempt from inheritance tax, there may be specific situations where tax laws and regulations could apply differently. It is always advisable to consult with a tax professional or legal expert specializing in estate planning to understand the specific tax implications for your situation.
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Frequently asked questions
The New Jersey Inheritance Tax separates beneficiaries into four classes: Class A, Class C, Class D, and Class E. The class that a beneficiary falls into determines whether there is New Jersey Inheritance Tax owed. Class A beneficiaries, including the decedent's spouse, child(ren), and grandchildren, are exempt from New Jersey Inheritance Taxes. Class C beneficiaries, including siblings and in-laws, are taxed at different rates depending on the amount inherited.
The New Jersey Estate Tax was phased out in two parts. For resident decedents who died on or before December 31, 2016, the estate tax exemption was capped at $675,000. For those who died on or after January 1, 2017, but before January 1, 2018, the estate tax was eliminated. From that date onwards, the New Jersey Estate Tax is no longer imposed.
Yes, Class A beneficiaries, including the decedent's spouse, civil union partner, child(ren), and grandchildren, are exempt from New Jersey Inheritance Taxes. Additionally, Class E beneficiaries, which include tax-exempt charities and governmental bodies, are also exempt.
The New Jersey Inheritance Tax applies to residents of New Jersey and non-residents who own real or personal tangible property in the state. The New Jersey Estate Tax is imposed if the estate exceeds the allowable credit, even if it is partially or fully exempt from inheritance tax. It is recommended to seek professional advice to navigate the complexities of inheritance and estate tax laws effectively.
