TAX REVIEW NJ Estate and Inheritance Taxes

When you think of the state of New Jersey and taxes, you usually expect them to be on the higher side relative to other states. When it comes to the “death tax” or estate taxes, New Jersey has surprisingly become more favorable over time. Many of our clients have trouble keeping track of these laws due to the changes that were made in the past and different classes of beneficiaries that can inherit assets. States that have a death tax tend to collect revenue in one of two ways: through an estate tax or through an inheritance tax. The good news is that New Jersey eliminated the estate tax for those dying on or after January 1, 2018. The New Jersey Inheritance tax, however, was never repealed and so this separate tax can still have an effect on the amount a beneficiary ultimately keeps.

So we have established that NJ residents do not have to worry about a NJ Estate Tax but how does this inheritance tax work? Well, New Jersey has created four separate “classes” for beneficiaries. Depending on which class the beneficiary falls in determines the tax that they would owe, if any.

Class A: This class of beneficiaries are exempt from NJ Inheritance taxes. These beneficiaries could be the decedent’s spouse, civil union partner, children, grandchildren, great grandchildren, stepchildren, parents or grandparents. Directly up or down your family line is one way to think of this class. Since these beneficiaries are not subject to estate OR inheritance taxes, leaving assets to those that fall under Class A is generally advisable for NJ residents where possible.

Class C: This class of beneficiaries (note that class B was eliminated in 1963) includes the decedent’s brothers or sisters, half siblings, son or daughter in-laws, widow of a deceased son and finally widower of a deceased daughter. This class is not exempt from inheritance tax for any amount greater than $25,000.

Their tax schedule is as follows: 11% tax on any amount over $25,000 up to $1,100,000

13% tax on amounts over $1,100,000 up to $1,400,000 14% on amounts over $1,400,000 up to $1,700,000 16% on any amount over $1,700,000

Class D: This class includes anyone that did not fall under class A or C. This could be nieces or nephews, cousins, friends, etc. Their tax schedule is 15% on any amount up to $700,000 and then 16% for any amount north of $700,000. They do receive the first $500 Inheritance tax-free.

Class E: These beneficiaries are tax-exempt charities and nonprofit organizations. Like class A, this class is exempt from New Jersey Inheritance Tax.

Financial planning can help clients decide the best way to leave money to various beneficiaries. If you wanted to leave money to a friend, for instance, it may be better to make them a beneficiary to a life insurance policy that is exempt from the NJ Inheritance tax as opposed to leaving another asset to them that would be subject to this taxation. If you have a home in another state, you should compare NJ laws to the other state’s laws to consider which death taxes are more favorable.

One final note is that your estate is exempt from the federal estate tax up to $12.92 million for 2023 and $25.84 million if you are married. As always, working with financial professionals can help you keep more of what you have by helping you develop the appropriate estate plan to accomplish your wishes.

Respectfully Submitted

CRA Investment Committee

Matthew Reynolds, CPA, CFP®

Robert T. Martin, CFA, CFP®

Jeffrey Hilliard, CFP®, CRPC®

Thomas Reynolds, CPA

Gordon Shearer, Jr., CFP®

Joseph McCaffrey, CFP® and/or legal advisers, regarding your personal circumstances before making investment decisions.