New Jersey repealed its estate tax effective January 1, 2018, which means that the estate of anyone dying after that date does not have to pay taxes to the state. But although the estate tax is no more, New Jersey is one of six states that still has an inheritance tax. Unlike the estate tax, the inheritance tax is levied on the beneficiary. In other words, those who receive assets from the deceased person’s estate may need to pay taxes on those assets. Anyone engaged in estate planning should keep this eventuality in mind and take steps to reduce the potential tax burden on their heirs.

Some types of taxes are graduated based on dollar amounts. For example, you pay more income tax if you earn more money. But New Jersey’s inheritance tax is based on the relationship between the deceased and the beneficiary, not on the value of the assets inherited. Generally speaking, the more closely related you are to the decedent, the less inheritance tax you pay, according to the following brackets:

• The decedent’s spouse, children, stepchildren, grandchildren, great grandchildren, mother, father and grandparents do not have to pay any inheritance taxes.
• The decedent’s siblings, half-siblings and sons- and daughters-in-law, as well as the widows or widowers of the decedent’s deceased children, pay anywhere between 11 and 16 percent in inheritance taxes.
• The decedent’s nieces, nephews, friends, fiancé or anyone else not listed above pay between 15 or 16 percent in inheritance tax.
• A charity or other tax-exempt entity does not need to pay inheritance tax.

Anyone who is obligated to pay inheritance tax must file a return within eight months of the decedent’s death.

Few people would want their loved ones to be stuck paying inheritance taxes. If you intend to leave property to anyone listed in groups two or three above, it is important to consider how those bequests may be impacted. Speak to a New Jersey estate planning lawyer about potential ways to reduce or avoid inheritance taxes. For example, you may decide to give beneficiaries gifts while you are still alive. Another possible strategy is to put assets into an irrevocable trust, with instructions to have the trustee pay specified beneficiaries after your death.

At the Law Offices of James C. Zimmermann, we can help you structure your estate planning in ways that maximize the value you pass along to your intended beneficiaries. Please call us at 973-764-1633 or contact us online to arrange a consultation. We have New Jersey offices in Vernon, Wayne, Pompton Lakes, Hackensack and Nutley.