1. Who Pays? Understanding Beneficiary Classes
New Jersey categorizes beneficiaries into four classes to determine tax liability:
| Beneficiary Class |
Relationship to Decedent |
Exemption Status |
| Class A |
Spouse, civil union partner, child, stepchild, grandchild, parent, grandparent |
Fully Exempt (0%) |
| Class C |
Sibling, half-sibling, son-in-law, daughter-in-law |
Partially Exempt (Taxed on amounts over $25,000) |
| Class D |
Nieces, nephews, cousins, aunts, uncles, friends |
Fully Taxable (Taxed on amounts over $500) |
| Class E |
Charities, religious institutions, nonprofits, State of NJ |
Fully Exempt (0%) |
2. Tax Rates: How Much Will You Pay?
For Class C Beneficiaries (Sibling, half-sibling, son-in-law, daughter-in-law)
| Inheritance Amount (Over $25,000) |
Tax Rate |
| $25,001 – $1,100,000 |
11% |
| $1,100,001 – $1,400,000 |
13% |
| $1,400,001 – $1,700,000 |
14% |
| Over $1,700,000 |
16% |
For Class D Beneficiaries (Nieces, nephews, cousins, aunts, uncles, friends)
| Inheritance Amount |
Tax Rate |
| $500 – $700,000 |
15% |
| Over $700,000 |
16% |
3. What should you know about filing and compliance — including deadlines, forms, and waivers?
Filing Deadline:
1) The
Inheritance Tax Return (Form
IT-R for residents or
IT-NR for non-residents) is due
within 8 months of the decedent’s date of death.
2)
Interest (10%) accrues on unpaid taxes after the deadline.
Tax Waivers (Form O-1):
New Jersey places an automatic
lien on real estate and certain financial accounts. These assets
cannot be transferred until the state issues a
tax waiver.
| Situation |
Form(s) to Use |
Purpose |
| All beneficiaries are Class A |
Form L-8 (non-real estate), Form L-9 (real estate) |
Self-executing waivers. May eliminate need for full return. |
| Any Class C, D, E beneficiaries |
Form IT-R |
Full return required. Once assessed and paid, State issues Form O-1 to release assets. |
4. What's Taxable & How to Plan Ahead
Taxable Assets:
1)
Real estate: Taxable if owned by a resident decedent. For non-residents, only NJ-based real estate and tangible property (e.g., vehicles, boats) are taxed.
2)
Other assets: Bank accounts, stocks, bonds, and personal property are taxable based on the beneficiary class.
Exempt Assets (Regardless of Class):
1)
Life insurance: Fully exempt if paid directly to a named beneficiary (not the estate).
2)
Retirement accounts: 401(k)s, IRAs, and federal pensions are typically exempt if payable to a named beneficiary.
Legal Strategies to Reduce Tax Liability:
1)
Strategic gifting: New Jersey has no gift tax, but a three-year look-back rule applies. Gifts made within three years of death may be taxed unless proven otherwise.
2)
Irrevocable trusts: Assets placed in a properly structured trust are generally not subject to the Inheritance Tax.
3)
Life insurance planning: Can be used to provide Class C or D beneficiaries with funds to pay the tax—helping them avoid selling other inherited assets.
5. Inheritance Tax vs. Estate Tax: What's the Difference?
One of the most common sources of confusion is the distinction between the. New Jersey Estate Tax and the Inheritance Tax.
Estate Tax (Eliminated):
New Jersey eliminated its state-level Estate Tax for individuals who died on or after
January 1, 2018. This tax was based on the total value of the estate and paid by the estate itself before distributing assets.
Inheritance Tax (Still in Effect):
This tax is still active and:
1)
Is not based on the size of the estate.
2) Is levied on the
beneficiary’s right to receive property.
3) Depends entirely on the
relationship between the decedent and the beneficiary.
If you're handling an estate in New Jersey today, the Inheritance Tax is your primary concern—unless the estate is large enough to trigger the Federal Estate Tax.