There are generally three kinds of taxes that may come into play upon death: 1) Income Taxes; 2) Inheritance Taxes; and 3) Estate Taxes. There are a variety of factors which determine whether and which types of returns and taxes are paid.
In our last post, we addressed Income Taxes. This post will address Inheritance and Estate Taxes.
Do I owe Inheritance Taxes?
Whether or not there may be Inheritance Taxes imposed depends on the relationship of the beneficiary or heir to the deceased person. Each class of beneficiary has its own separate tax rate.
If you are a Class A beneficiary, the good news is, there are NO inheritance taxes due on your inheritance. If you are Class C or D beneficiary, you may owe inheritance taxes, depending upon how large the inheritance is. Here are the categories of the different relationships that fall into each Class of beneficiaries or heirs:
Parents, grandparents, spouses, children, grandchildren, and great-grandchildren, etc. This includes stepchildren and adopted children.
Class A beneficiaries pay no inheritance tax.
This category has been eliminated.
Brothers and sisters, and sons-in-law and daughters-in-law. This includes half-siblings.
Class C beneficiaries pay no income tax on the first $25,000 they receive and 11% thereafter, up to $1,075,000 inherited. After that, the marginal rate increases to 13%, 14%, and 16%, depending on the amount received.
Everyone else who is not a Class A, Class C, or Class E beneficiary. This includes aunts, uncles, nieces, nephews, and close friends, etc.
Class D beneficiaries pay 15% on the first $700,000 received and 16% thereafter.
Charitable institutions such as churches, hospitals, etc.
Class E beneficiaries pay no Inheritance Tax.
Do I need to file an Inheritance Tax Return for a New Jersey Estate?
If there are any Class C, Class D, or Class E beneficiaries, then the Administrator or Executor must file an Inheritance Tax Return with the State of New Jersey. Even if all beneficiaries are Class A, there are still circumstances where Inheritance Tax Returns must be filed. These are the determinations that need to be made during the probate process for the estate.
Who is liable to pay the Inheritance Tax on a New Jersey Estate ?
The Will may provide that the Estate should pay all inheritance taxes out of leftover funds after the payment of all bequests and administrative expenses, etc. Otherwise, the Inheritance Tax will be deducted from the amount each heir receives. The Executor or Administrator is responsible for filing the necessary forms and ensuring the appropriate Inheritance Taxes are paid.
What about Estate Taxes? Does New Jersey have its own Estate tax?
We used to! However, the State of New Jersey eliminated estate taxes for all persons dying on or after January 1, 2018.
Although New Jersey no longer has and Estate tax, the federal government does. The federal estate tax laws currently impose an estate tax on very large estates. How large? The exemption for the 2020 tax year is $11.58 million dollars for individuals and $23.16 million dollars for married couples. Unlike New Jersey, the federal government does not impose an inheritance tax.
Who should I call if I have questions about Inheritance Taxes?
The attorneys at Goldstein Law Group have decades of combined experience assisting New Jersey residents with a myriad of estate administration and related issues, including preparing and filing Inheritance Tax Returns, and we are here to help you when a loved one has passed. To schedule an appointment to speak to one of our knowledgeable New Jersey estate attorneys, call us at 732-967-6777 and ask for a Free 10 Minute Case Evaluation*. We have offices conveniently located in Old Bridge, (Middlesex County) and Brielle, (Monmouth County), and serve clients in Ocean County, Monmouth County, Middlesex County, Somerset County, Union County, Essex County, Hudson County, and all counties throughout the State of New Jersey.