If you’re settling an estate or planning your own, it’s important to understand the New Jersey inheritance tax. While the state no longer collects an estate tax, it still imposes an inheritance tax—one of only a handful of states that do.
The New Jersey inheritance tax is a tax on certain beneficiaries who inherit money or property from someone who lived in or owned property in New Jersey. Unlike an estate tax, which is based on the total value of the estate, an inheritance tax is based on the relationship between the deceased person and their beneficiaries.
This means it’s not about how much you leave behind—it’s about who you leave it to. New Jersey divides beneficiaries into classes. Whether a person pays inheritance tax—and how much—depends on which class they fall into.
Class A:
Spouse or civil union partner; child, grandchild, stepchild; parent, grandparent; charitable organizations. Tax rate: 0%. These beneficiaries are fully exempt.
Class C:
Siblings; sons- and daughters-in-law; surviving spouses of deceased children. Tax rate: First $25,000 is exempt. Amounts above $25,000 face taxes of 11% to 16%.
Class D:
Nieces, nephews, cousins; friends; unrelated individuals. Tax rate: Entire inheritance faces taxes starting at 15%, going up to 16% for amounts over $700,000.
Class E:
Nonprofits, religious institutions, schools, and other qualified organizations. Tax rate: 0%. Fully exempt.
What Assets Are Subject to the New Jersey Inheritance Tax?
The New Jersey inheritance tax applies to most property passed to non-exempt beneficiaries, including:
- Real estate
- Bank accounts
- Investment accounts
- Personal property (jewelry, collectibles, etc.)
Life insurance is generally exempt if paid directly to a named beneficiary.
When and How Do You Pay?
The tax comes due eight months after the person’s passing. Beneficiaries or the estate’s representative must file a return with the New Jersey Division of Taxation. If payment is late, interest begins to accrue. Tax waivers may also be necessary to transfer certain property, like real estate or bank accounts, to beneficiaries.
Can You Avoid It?
There’s no way to completely avoid the New Jersey inheritance tax if you’re giving assets to someone in Class C or D. However, here are a few common strategies people use to reduce or manage it:
- Gifting during life: You can give assets to others while you’re still alive. New Jersey doesn’t tax gifts unless they’re made within three years of passing (this is called the “look-back” period).
- Naming Class A beneficiaries: Assets left to a spouse, child, or grandchild aren’t subject to the tax.
- Creating trusts: Some people use trusts to control when and how to distribute assets, which may offer flexibility around taxation. Trusts can also help families avoid the costs and delays of probate, which can consume 3-7% of an estate’s value and take 1-2 years to complete.
(Read More: Learn about revocable trusts in New Jersey versus Nevada and the cost of probate in New Jersey.)
Sources
- New Jersey Statutes (§ 3B, § 3B, § 3B)