Until now, New Jersey had both an estate tax and an inheritance tax. Estate taxes are paid by the deceased person’s estate before the money is distributed to their heirs. Inheritance taxes are paid by the heir who inherits the money or assets.
The New Jersey law referred to as the Transportation Trust Fund bill negotiated by state leaders this month repeals the estate tax but keep the inheritance tax. The law is criticized because it raises taxes on the middle class through substantial increase in gasoline taxes but helps the wealthiest residents through elimination of the estate tax and tax relief on retirement income. It appears that the majority of state residents oppose the new tax law but government leaders found it necessary to sustain the state’s financial position. More details on the law are available here on njbiz.com.
After the new law is passed repealing NJ’s estate tax, only fourteen states and the DC will have an estate tax. Only six states – Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania – have an inheritance tax. It is widely believed by accountants and financial planners that the inheritance taxes provides an incentive for the most wealthy residents, those worth multi-millions and plan to bequeath money to persons and entities other than their children, to leave these states in their later years.
Both the executor of the estate and the person receiving the inheritance must file tax returns for the NJ inheritance tax. The inheritance tax ranges from 11% to 16% but does not apply to linear descendants (spouse, children, grandchildren).
To be clear, however, most estates escape the inheritance tax. This tax can be reduced or avoided through advance tax planning. The new law impacts other types of taxes, especially tax on retirement income. I am available to discuss this type of tax planning for your situation.