Upon a person's death, there are several important tax filings that the surviving family or estate administrators and executors must be aware of:

Form NJ IT-R – NJ Inheritance Tax Return for Resident and Form NJ IT-NR -Non-Resident Returns:

The NJ Inheritance tax return is due eight (8) months from the decedents date of death. Extensions are permitted; however, interest (10%) accumulates on any unpaid tax liability if paid after the due date of the return. Class A beneficiaries are exempt from tax (see below) may bypass the filing of the NJ Inheritance tax returns under certain circumstances.

Final Form 1040 federal and state income tax returns:

These are due by Tax Day (April 15 or October 15, if an extension is filed) of the year following the individual's death.

Federal & NJ Estate Form 1041 income tax returns:

Due by April 15 of the year following the decedent's death for calendar year taxpayers. The estate may elect to file on a fiscal year instead of a calendar year. Income received by the estate after the decedent's date of death is reported to both IRS and NJ Division of Taxation on Form 1041 and Form NJ-1041.

Federal Estate tax return:

Due within nine months of the individual's death, though an automatic six-month extension is available. The federal estate tax is applicable only to estates exceeding a gross asset value and prior taxable gifts of $13.61 million in 2024.

New Jersey no longer imposes an "Estate Tax" as of January 1, 2018. Therefore, the only death-related tax imposed by New Jersey is the "Inheritance Tax," which remains an important consideration for those inheriting assets, funds, and realty from New Jersey residents or for non-residents inheriting property in the state.

New Jersey imposes an "inheritance tax," distinct from the federal estate tax and New Jersey's now-repealed "estate tax." The inheritance tax primarily applies to beneficiaries of a decedent's estate, with varying exemptions and rates based on the relationship of the beneficiary to the deceased.

Immediate family members (called Class A beneficiaries) of the decedent are fully exempt from the New Jersey inheritance tax. This includes spouses, civil union partners, domestic partners, children (including stepchildren and mutually acknowledged children), grandchildren, great-grandchildren, parents, and grandparents.
Non-Profits are Exempt(called Class E beneficiaries) Inheritances left to religious institutions, schools, or charitable organizations are also exempt from the tax.

Class C - Brothers/Sisters, Son/Daughter In-Laws - First $25,000 is exempt, excess is subject to tax.

Class A Beneficiaries: - Spouses, civil union partners, domestic partners, parents, grandparents, and descendants (such as children, stepchildren, and grandchildren) of the decedent fall into Class A. Class A beneficiaries are completely exempt from the inheritance tax.

Class C Beneficiaries: - This group includes siblings of the decedent and children-in-law (including those related through civil unions or domestic partnerships). Class C beneficiaries can inherit up to $25,000 untaxed. Beyond that, inheritances between $25,000 and $1.7 million are taxed at graduated rates ranging from 11% to 14%. If the inheritance exceeds $1.7 million, it is taxed at a flat rate of 16%.

Class D Beneficiaries: - Class D includes all other relatives not covered by the previous classes, such as nieces, nephews, and cousins. Also included are friends and significant others. These beneficiaries are taxed at a rate of 15% on the first $700,000 of inheritance, with a higher rate of 16% on any amount exceeding $700,000.

Class E Beneficiaries: - Tax-exempt entities such as charities, religious institutions, educational institutions, and governmental bodies are classified as Class E beneficiaries and are exempt from the inheritance tax.

It is very typical for funds (usually 50%) held in banks and brokerage accounts to be frozen until a NJ Inheritance Tax waiver is issued by the NJ Division of Taxation. Also, a tax wavier is usually required for real estate owned by the estate. This is true even if the beneficiary is exempt from the inheritance tax.

Inheritance Tax Calculations and Applicability

The New Jersey inheritance tax is based on the value of the transferred property and the relationship between the decedent and the beneficiary. It applies to any property or income from property that exceeds $500 in value. The inheritance tax is calculated after accounting for any available exemptions and deductions. Deductions include a decedent's debts, mortgages, funeral costs, etc. Executor fees, Notably, life insurance proceeds are exempt from this tax.

Additionally, non-residents who own real or tangible personal property in New Jersey (e.g., shore homes or rental properties) may also be subject to the state's inheritance tax.

Domicile and Inheritance Tax

A key element in determining whether the New Jersey inheritance tax applies is the decedent's domicile at the time of death. Domicile is defined by intent and requires physical presence or ties to New Jersey. If a person is domiciled in New Jersey at their time of death, their estate will generally be subject to the state's inheritance tax.

For individuals who leave New Jersey but intend to return, courts often still consider them domiciled in New Jersey. However, even if a person spends extended time outside the state (more than 183 days), they might not avoid New Jersey inheritance taxes if they maintain significant connections to the state, such as property ownership.

Common Questions About the New Jersey Inheritance Tax

Some frequent inquiries revolve around who the inheritance tax applies to, the tax rates, and the taxability of life insurance and charitable gifts. The tax applies to New Jersey residents and non-residents who own real estate or personal property in the state, with life insurance and charitable gifts being exempt. Beneficiaries should understand their classification to determine the applicable tax rate or exemption status, and plan accordingly for any potential taxes they may owe when inheriting from a loved one.

In summary, New Jersey's inheritance tax affects beneficiaries differently based on their relationship to the decedent, with immediate family members and charitable organizations enjoying full exemptions. The tax rates increase progressively based on the inheritance value, particularly for more distant relatives. Understanding the applicable tax laws and classifications can help beneficiaries navigate the process more smoothly.