New York, New York – Navigating New Jersey’s Inheritance Tax Maze of Madness

New Jersey’s inheritance tax can be both expensive and complicated. The Unger Company can help mitigate or eliminate the death tax your heirs will pay.

There’s a funny little rivalry in the Tri-State area. New Jersey and New York are like competitive siblings who take a different approach on many things. As wealth transfer experts based in the region, The Unger Company understands that this is as true in the area of wealth transfer as it can be in any other area.

Where New York has an estate tax, New Jersey has an inheritance tax, and is one of five states that applies only an inheritance tax. The others are Pennsylvania, Iowa, Nebraska, and Kentucky. Maryland applies both an estate and an inheritance tax – OMG!

New Jersey’s inheritance tax is one of the older taxes of its type in the country. The New Jersey inheritance tax dates back to 1892, where the modern federal estate tax dates to 1916. And from 1934 to 2018, New Jersey had both estate and inheritance taxes – OMG, again! Under this system, a credit for the inheritance tax for each heir or beneficiary was applied against the estate tax. Thank goodness the state finally made things a little saner. But just a little.

So, what the heck is an inheritance tax and how, in simple terms, does it differ from an estate tax? An estate tax is a tax on the right to transfer wealth from the estate of someone who has died to an heir or beneficiary. An inheritance tax is applied specifically to the person or people who receive the assets from an estate – basically the individuals named as heirs or beneficiaries. And this makes the thresholds and exemptions quite different.

Okay, that’s the easy part. But as strategists and specialists in the area of wealth transfer taxes, The Unger Company appreciates that New Jersey’s tax isn’t exactly easy. There are several relations who are exempt from New Jersey’s inheritance tax: a spouse, civil union partner, domestic partner, child, grandchild, parent, or grandparent of the decedent. However, if the assets are being transferred to a sibling, a niece or nephew, cousin or non-relative, the tax can be surprisingly harsh with generally low exemption levels (+/-$600). Paperwork for the tax must be filed within eight months of the decedent’s death and any taxes not paid by that eight-month deadline will be assessed a penalty of 10 percent! Talk about late fees!!

New Jersey also has two types of inheritance taxes: resident and non-resident. The resident would be applied to a transfer when the decedent is a resident of the state, while a non-resident is a decedent who owned New Jersey real estate at the time of their death.

There are also different levels of taxation that apply to different “classes” of heirs or beneficiaries. A sibling or child-in-law of the decedent is considered a Class C relative and there is an exemption of $25,000. A tax of between 11-and-14 percent applies to inheritance amounts between $25,000 and $1.7 million, and 16 percent for inheritances for more than $1.7 million. A niece, nephew, aunt, or uncle are Class D relatives. There’s no exemption and a 15-percent tax is applied to the first $700,000 inherited and 16 percent for everything above $700,000.

According to Zillow, in the spring of 2023 there are more than 30 towns in the Garden State with a typical home value of more than $1 million. That means a nephew who inherits a sweet shore house in Deal, Stone Harbor or Mantoloking, or a nice suburban spread in Saddle River, Alpine, Short Hills or Rumson will need to square a tax bill before moving in. If s/he can’t manage it, that property will be on the market.

This is just a sample of the New Jersey death tax maze. The Unger Company strategizes methods that enable a family to avoid or manage New Jersey’s inheritance tax. We won’t act as attorney for the client but will work with counsel that will have to draft Instruments like trusts which can be utilized with and without insurance to prevent imposition of these taxes. It might, however, be appropriate to consider insurance if total prevention is impossible.

The Unger Company, Ltd. specializes in strategies and solutions to address the complicated inheritance and estate taxes faced by high net worth (HNW) and ultra-high net worth (UHNW) clients. Founded in 1974 by Harold Unger, an experienced and highly knowledgeable professional in this specialized field, The Unger Company work closely with a client’s existing legal, financial, and accounting team to create the kind of estate structures that provide a maximized tax shield to enable heirs and beneficiaries to benefit. Contact us through our website or call us at 212-755-4777 to learn what we can do for you.

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Harold Unger LinkedIn: https://www.linkedin.com/in/harold-m-unger-9453aa73/

The Unger Company Ltd. LinkedIn: https://www.linkedin.com/company/93617123/