The NJ Division of Taxation requires that you file an accurate return. The Inheritance Tax Section routinely reviews and audits inheritance tax returns. It is important that you exercise due diligence by retaining an experienced tax accountant to represent you. We have filed hundreds of estate and inheritance tax returns for NJ taxpayers.

Typically, the estate pays the accounting/tax preparation fee (which is a deduction on the return). Additionally, by retaining a tax professional, both the executor and the beneficiaries will benefit by avoiding errors due to inexperience in these matters.

If any of the estate beneficiaries are not Class A beneficiaries, 50% of financial assets such as brokerage and bank accounts are usually "frozen" until the NJ Division of Taxation issues an official waiver to release the funds. Also, if the estate sells or transfers real estate, the title company or the buyer’s attorney will usually require a NJ realty tax waiver or a substantial escrow at time of closing.

Call us to schedule a free telephone consultation with an experienced tax accountant. We will explain the procedures regarding the issuance of tax waivers, and other important issues. We will also answer your questions and give you an approximate fee quote for our services.

When to File

The executor, administrator, or heir-at-law of the estate must file an Inheritance Tax return (if required) within eight (8) months of the date of the decedent's death. If tax is due, the tax also must be paid on the transfer of taxable real or personal property within eight (8) months of the date of the decedent’s death.

Interest

Interest is calculated at the annual rate of 10% on any direct tax or portion not paid within eight (8) months of the date of the decedent’s death.

Resident Decedents - What to File

You must file a paper return or form(s) to determine whether any tax is due or when a waiver is needed. If a return is required, a resident decedent’s estate will need to file Form IT-R.

Note: Electronic filing is not available for Inheritance and Estate Tax returns.

Resident Decedents

If an Inheritance Tax Return is not required and you need a waiver, you may need to file: • An Affidavit and Self-Executing Waiver, Form IT-L-8,with each financial institution to secure the transfer or release of bank accounts, stocks, bonds and brokerage accounts.

And/or
• An Affidavit for Resident Decedent Requesting Real Property Tax Waiver(s), Form IT-L-9,with the Division of Taxation to request the release of the State's lien on real estate owned by resident decedent.

Class "A" - Father, mother, grandparents, spouse/civil union partner (after 2/19/07), domestic partner (after 7/10/04), child or children of the decedent, adopted child or children of the decedent, issue of any child or legally adopted child of the decedent, and stepchild of the decedent.

Class "B" - Eliminated by statute effective July 1, 1963.

Class" C" - Brother or sister of the decedent, including half-brother and half-sister, wife/civil union partner (after 2/19/07) or widow/ surviving civil union partner (after 2/19/07) of a son of the decedent, or husband/civil union partner (after 2/19/07) or widower/surviving civil union partner (after 2/19/07) of a daughter of the decedent.

Class "D" - Every other transferee, distribute or beneficiary who is not included in Classes "A", "C" or "E".

Class "E" - The State of New Jersey or any political subdivision thereof, or any educational institution, church, hospital, orphan asylum, public library or Bible and tract society or to, for the use of or in trust for religious, charitable, benevolent, scientific, literary or educational purposes, including any institution instructing the blind in the use of dogs as guides, no part of the net earnings of which insures to the benefit of any private stockholder or other individual or corporation; provided, that the exemption does not extend to transfers of property to such educational institutions and organizations of other states, the District of Columbia, territories and foreign countries which do not grant an equal, and like exemption on transfers of property for the benefit of such institutions and organizations of this State.

CLASS "A" (no tax) - Class A beneficiaries are entirely exempt in estates of decedents dying on or after July 1st, 1988.
CLASS "B"(no tax) - Class B - Eliminated by statute effective July 1, 1963.
CLASS "C" (taxed) - Class C – Beneficiaries in estates of decedents dying on or after July 1st, 1988, are taxed as follows:

First	$25,000	Exempt
Next	$1,075,000	11%
Next	$300,000	13%
Next	$300,000	14%
Over	$1,700,000	16%

CLASS "D" (taxed) - Class D - Beneficiaries in estates of decedents dying on or after March 29th, 1962, are taxed as follows:

If less than $500: no tax	If $500 or more: no exemption
First	$700,000	15%
Over	$700,000	16%

CLASS "E" (generally no tax) - Class E – Generally, beneficiaries such as churches, hospitals, educational, etc. are not taxed.

Why you may need a New Jersey Inheritance Tax Wavier

When a taxpayer passes away (and leaves various assets such as real estate, bank accounts, investment/brokerage accounts, etc.) an automatic lien is created by the NJ Division of Taxation against the decedent’s assets.

The issuance of the waiver by the NJ Inheritance Tax Section acts as proof that the Inheritance Tax is either paid or that no tax is due. The waiver releases the automatic lien on the asset.

Real Estate owned by the Estate

If all of the beneficiaries of the estate are Class A beneficiaries (such as a parent, child, grandchild, etc.) no tax may be due, however, you still need apply for the waiver because the title company wants written proof in the form of a waiver that no tax is due. If all of the beneficiaries are Class A beneficiaries, a representative of the estate may file Form L-9 in lieu of Form IT-R or Form IT-NR. The processing of these forms by the NJ Inheritance Tax Section typically takes a minimum of 90 days. However, if the form/return is selected for audit, it may take much longer. It is very typical for Inheritance Tax Section to review/audit these applications. Accordingly, utilizing an experienced attorney or tax accountant to prepare the forms can avoid unnecessary delays.

Other beneficiaries, (Class C and D beneficiaries, such as brothers/sisters, nephews/nieces, friends or significant others) are subject to tax and the estate must file Form IT-R or Form IT-NR to apply for the waiver.

For example, if the estate needs to sell a residence, the buyer’s attorney or the buyer’s title company will usually require a waiver prior to closing. If the waiver has not been issued, it is common for the title company to hold funds from the proceeds of the sale until the waiver has been issued. Many times, the title company or the buyer’s attorney will escrow 16% or more of the sales price to assure that estate pays the Inheritance Tax.

Sample of a Realty Tax Waiver recorded by the County Clerk where the realty is located

Bank Accounts and Investment/Brokerage Accounts

Banks and investment firms will typically release 50% of the funds to the executor or co-owner of the account. The remaining 50% will usually be "frozen" until the bank or broker firm receives a waiver.

Many executors are usually instructed to transfer funds owned by the decedent (funds held in banks and investments accounts) to a new account held in the name of the estate. Closing various checking, savings, and investment accounts, and transferring the monies to an estate account controlled by the executor is a good practice especially if any disputes arise between the beneficiaries.

If all of the beneficiaries are Class A beneficiaries (such as a parent, child, grandchild, etc.), a representative of the estate may file Form L-8 in lieu of Form IT-R or Form IT-NR. Form L-8 is submitted directly to the bank or the investment firm, and they will immediately release the funds to estate.

If any of the beneficiaries are Class C or D (such as brothers/sisters, nephews/nieces, friends or significant others) then Form L-8 cannot be used and the estate must file Form IT-R or Form IT-NR.