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What Assets Are Subject to New Jersey Inheritance Tax?
Not all inherited assets in New Jersey are subject to inheritance tax. The tax depends on the relationship between the decedent and the beneficiary, and on the type of asset transferred. NJ imposes an inheritance tax on certain assets transferred after death. Most property owned by a New Jersey resident is subject to this tax when it passes to non-exempt beneficiaries. This includes real estate, financial accounts, and personal property located in the state. Non-residents are only taxed on real and tangible personal property physically located in NJ. Additionally, gifts made within three years before death may also be taxed under the state’s “look-back” rule.
What Is the New Jersey Inheritance Tax?
The NJ inheritance tax is a tax imposed on the transfer of assets from a deceased person (the decedent) to their beneficiaries. Unlike an estate tax, which is levied on the entire estate before distribution, an inheritance tax is paid by the individual beneficiaries who receive the assets.
New Jersey is one of only six states that still impose an inheritance tax. While NJ eliminated its estate tax in 2018, the inheritance tax remains in effect. This tax is separate from the federal estate tax, which only affects estates valued over $13.61 million (as of 2024).
Who Must Pay the Inheritance Tax?
The person who receives the inheritance, the beneficiary, is generally responsible for paying the inheritance tax. The New Jersey inheritance tax is based on the relationship between the deceased and the beneficiary. The state divides beneficiaries into different classes, each with varying rates of tax and exemptions.
| Beneficiary Class | Relationship to Deceased | Tax Rate | Tax Rate for Each Beneficiary or Transferee | Exemption Amount |
|---|---|---|---|---|
| Class A | Spouse, civil union partner, child, parent, grandchild, grandparent, stepchild | 0% | No tax is due | Fully exempt |
| Class C | Sibling, son-in-law, daughter-in-law | 11-16% | Next $1,075,000 – 11% Next $300,000 – 13% Next $300,000 – 14% Over $1,700,000 – 16% | First $25,000 |
| Class D | Person/entity not in Classes A, C, or E, e.g., niece, nephew, friend, distant relative | 15-16% | First $700,000 – 15% Over $700,000 – 16% | $500 or less |
| Class E | Qualified charities, religious institutions, educational organizations | 0% | No tax is due | Fully exempt |
Types of Assets Subject to New Jersey Inheritance Tax
Real Property
- Residential homes and vacation properties located in NJ
- Commercial real estate within state boundaries
- Land and undeveloped property in NJ
- Rental properties and income-generating real estate
Financial Assets
- Bank accounts and cash
- Stocks, bonds, and mutual funds
- Certificates of deposit (CDs)
- Business interests and partnerships
- Promissory notes and accounts receivable
Personal Property
- Vehicles, boats, and aircraft
- Jewelry, art, and collectibles
- Furniture and household items
- Other tangible personal property located in NJ
Exempt Assets
Certain assets are exempt from New Jersey inheritance tax regardless of who inherits them. Those assets include:
- Life insurance proceeds paid to a named beneficiary (not to the estate)
- Certain state and federal pension benefits
- Annuities that qualify under specific provisions
- Railroad retirement benefits
New Jersey Inheritance Tax Rates
The tax rates for New Jersey inheritance tax vary depending on the beneficiary class and the value of the assets inherited. Understanding these rates is essential for calculating potential tax liability.
Class C Beneficiary Tax Rates
| Inherited Amount | Tax Rate |
| First $25,000 | Exempt (0%) |
| $25,001 to $1,075,000 | 11% |
| $1,075,001 to $1,375,000 | 13% |
| $1,375,001 to $1,700,000 | 14% |
| Over $1,700,000 | 16% |
Class D Beneficiary Tax Rates
| Inherited Amount | Tax Rate |
| $0 to $499 | Exempt (0%) |
| First $700,000 | 15% |
| Over $700,000 | 16% |
Example: If a niece (Class D beneficiary) inherits $800,000, she would pay 15% on the first $700,000 ($105,000) and 16% on the remaining $100,000 ($16,000), for a total inheritance tax of $121,000.
How to Minimize or Avoid New Jersey Inheritance Tax
With proper planning, you can significantly reduce or eliminate New Jersey inheritance tax liability.
A comprehensive estate plan doesn’t just determine who receives your property; it also determines how those transfers are structured to reduce or eliminate potential tax liability. Working with an experienced NJ estate planning attorney allows you to:
• Identify which assets in your estate are taxable and which are exempt
• Take advantage of tax-free transfers and exemptions
• Use trusts, lifetime gifts, and charitable giving to minimize inheritance tax exposure
Here are effective strategies our estate planning attorneys recommend:
Lifetime Gifting
Making gifts during your lifetime can reduce the size of your taxable estate, but be aware of the three-year “look-back” rule:
- Gifts made more than three years before death are not subject to inheritance tax
- Consider establishing a regular gifting program well before the anticipated end of life
- Be mindful of federal gift tax rules ($19,000 annual exclusion per recipient in 2025)
Strategic Beneficiary Planning
Since Class A beneficiaries are exempt from inheritance tax, consider these strategies:
- Leave assets to Class A beneficiaries instead of Class C or D when possible
- Consider having Class A beneficiaries make subsequent gifts after you pass away to Class C and D beneficiaries (although there are obvious risks with this)
- Use life insurance to provide a tax-free inheritance to non-exempt beneficiaries
Charitable Giving
Charitable organizations (Class E beneficiaries) are exempt from inheritance tax:
- Consider leaving assets to qualified charities instead of taxable beneficiaries
- Establish a charitable remainder trust that provides income to beneficiaries and the remainder to charity
- Create a private foundation to achieve charitable goals while maintaining family control
Trust Strategies
Various trust arrangements can help minimize inheritance tax:
- Irrevocable Life Insurance Trusts (ILITs) to keep insurance proceeds outside the taxable estate
- Qualified Personal Residence Trusts (QPRTs) to transfer homes at reduced tax cost
- Dynasty Trusts to benefit multiple generations while minimizing transfer taxes
Get Help With New Jersey Inheritance Tax Planning
Navigating NJ’s inheritance tax laws requires careful planning and guidance. The strategies that work best depend on your specific family situation, the types of assets you own, and your estate planning goals.
Our experienced New Jersey estate planning attorneys can help you:
- Identify which assets in your estate may be subject to inheritance tax
- Develop strategies to minimize tax exposure for your beneficiaries
- Create a comprehensive estate plan that achieves your goals while reducing tax liability
For more inquiries related to estate planning in New Jersey and New York, please do not hesitate to contact The Chamberlain Law Firm by clicking here or calling us at (201) 273-9763.
Frequently Asked Questions About New Jersey Inheritance Tax
Do retirement accounts get taxed under the New Jersey inheritance tax?
Retirement accounts such as 401(k)s, IRAs, and pension benefits are subject to NJ inheritance tax when passing to non-exempt beneficiaries (Class C and D). However, if these accounts pass to Class A beneficiaries (spouse, children, parents) or qualified charities (Class E), they are completely exempt from inheritance tax.
Are life insurance proceeds subject to inheritance tax in New Jersey?
Life insurance proceeds paid directly to a named beneficiary are exempt from NJ inheritance tax, regardless of the beneficiary’s relationship to the deceased. However, if the proceeds are payable to the estate rather than a named beneficiary, they become subject to inheritance tax.
How much can a sibling inherit tax-free in New Jersey?
Siblings are classified as Class C beneficiaries in NJ and can inherit up to $25,000 tax-free. Any amount over $25,000 is subject to inheritance tax at rates ranging from 11% to 16%, depending on the total value inherited.
Does New Jersey still have an estate tax?
NJ repealed its estate tax effective January 1, 2018. However, the federal estate tax may still apply to very large estates, over $13.99 million in 2025.
How long do I have to file a New Jersey inheritance tax return?
The NJ inheritance tax return (Form IT-R) must be filed and the tax paid within eight months of the decedent’s date of death. Filing extensions may be granted, but interest will still accrue on any unpaid tax. Failure to file on time can result in penalties in addition to interest charges.