New Jersey collects both an inheritance tax and its own estate tax, separate from the federal estate tax. Under current law, estates with a total value of more than $675,000 are subject to the New Jersey estate tax. The governor, however, has proposed raising the exemption to $1 million.
There is also an inheritance tax in New Jersey. It’s different from the estate tax because it applies to estates of any size, but the tax rate is based on how closely each inheritor is related to the deceased person.
When an Estate Tax Return Is Required
If you’re a New Jersey resident and leave assets with a gross value of more than $675,000, the executor of your estate will have to file a New Jersey estate tax return. (Federal estate tax returns are required only for estates of more than $5.34 million for deaths in 2014.) The New Jersey estate tax does not apply to nonresidents, even if they own valuable New Jersey real estate or other property.
The value of your gross estate is calculated by adding up all of the assets you own at death, including:
- Real estate in New Jersey
- Bank accounts and certificates of deposit
- Investment accounts and securities
- Vehicles and other items of personal property
- Proceeds from insurance policies on your life, unless you didn’t own the policy
- Retirement account funds
- Small business interests (sole proprietorship, limited liability company, or small corporation)
It doesn’t matter, for tax purposes, whether or not any of your assets go through probate at your death. Real estate in a living trust, a retirement account for which you’ve named a beneficiary, a jointly owned bank account—it all gets counted.
Some other less obvious assets are also included:
- taxable gifts you made during life (more than the federal gift tax annual exclusion amount, currently $14,000 per year per recipient).
- proceeds of any life insurance policy you transferred to an irrevocable life insurance trust within three years before death.
Property you leave to your spouse or civil union partner is exempt from state estate tax, no matter what the amount. This differs from federal law, which does not treat same-sex couples, whether they are legally married under state law or civil union partners, like married couples.
The Taxable Estate
The amount of your gross estate determines whether or not a tax return must be filed. The amount of your taxable estate—what’s left after you subtract allowed deductions from the gross estate—determines whether or not your estate actually owes tax.
The big deduction, for many people, is the marital deduction, which lets you subtract any amount you leave to your spouse. So if you leave all your property to your spouse, your estate won’t owe any tax. Other deductions include attorney fees, funeral costs, and outstanding income tax bills, among others. If the deductions reduce the value of your taxable estate below $675,000, your executor won’t have to write a check for state estate tax.
The Estate Tax Return and Payment
New Jersey has two kinds of estate tax returns. There’s a simplified form for estates that don’t also have to file a federal estate tax return, and a regular estate tax return for larger estates. The simpler form is due nine months after the death. The regular form is due nine months and 30 days after the death. Any tax due must be paid when the return is due. Interest accrues on unpaid tax.
If there’s a surviving civil union partner, the estate must prepare and submit a “dummy” Form 706, prepared as though the IRS treated a surviving civil union partner just like a surviving spouse.
Both the state and federal returns are complicated, and the executor will need to hire an experienced professional to prepare them. The fee is paid from estate assets.
For information on the estate tax, see the New Jersey Treasury Department’s Division of Taxation.