All jointly personal and real property is exempt from the probate process. But all property, whether jointly or individually held, is taxable provided that is not categorically exempted; e.g. (marital residence).
Taxes That Influence Your Will
Three kinds of taxes can influence the provisions of your Will; Inheritance, estate, and gift.
An inheritance by Will, by law, by surviving joint owner, or from life insurance is not income and is not subject to income tax.
Inheritance tax law recognizes five beneficiary classes ranging from "A" to "E" as follows:
• Class "A" - father, mother, grandparents, husband, wife, child or children of a decedent, adopted child or children, issue of any child or legally adopted child of a decedent, mutually acknowledged child and step child.
• Class "B" - Eliminated by statute effective July 1, 1963.
• Class "C" - Brother or sister of decedent, wife or widow of a son of decedent, or husband or widower of a daughter.
• Class "D" - Every other transferee, distributee or beneficiary.
• Class "E" - Includes transfers for public or charitable purposes to the State of New Jersey or any of its political subdivisions, an educational institution, church, hospital, orphan asylum, public library, and certain other nonprofit agencies, etc.
In estates of decedents dying on or after July 1, 1988, only beneficiaries in Classes "C" and "D" are subject to inheritance tax.
Each class of beneficiaries has its own separate rate schedule.
• Class "A" - all Class "A" beneficiaries are totally exempt from tax.
• Class "B" - was eliminated by P.L. 1962, c. 61.
• Class "C" - were granted a $25,000 exemption on estates of decedents. After the initial $25,000 exemption, the rates range from 11% on the next $1,075,000 to 16% for any transfer over $1,700,000.
• Class "D" - the law imposes a tax on the transfer of property with a value of $500.00 or more. The rates range from 15% on the first $700,000 to 16% for amounts over $700,000.
In addition to the exemptions listed under "Tax Rates", no tax is imposed on:
• Transfers under $500.00
• Life insurance proceeds to a named beneficiary
• Charitable transfers for the use of any educational institution, church, hospital, orphan asylum, public library, etc.
• Transfers for public purposes made to New Jersey or any political subdivision of the State.
• Payments from the New Jersey Public Employees' Retirement System, the New Jersey Teachers' Pension and Annuity Fund and the New Jersey Police and Fireman's Retirement System.
• Federal civil service retirement benefits payable to a beneficiary other than the estate.
• Annuities payable to survivors of military retirees.
When Taxes Are Due
An inheritance tax return must be filed on the transfer of real or personal property within 8 months after the death of either:
• A resident decedent for the transfer of real or tangible personal property located in New Jersey or intangible personal property wherever situated, or
• A nonresident decedent for the transfer of real or tangible personal property located in New Jersey. No tax is imposed on nonresident decedents for intangible personal property wherever located.
• A tax return must be filed whenever any tax is due. The tax is a lien on all property for 15 years, unless paid sooner or secured by acceptable bond. Interest on unpaid tax will accrue at the rate of 10% a year.
Amendments To The Original Return
In the case of both resident and non-resident estates, any assets and/or liabilities not disclosed in the original return and all supplemental data requested by the Transfer Inheritance Tax Branch is to be accompanied by an affidavit form and attested to by the duly authorized statutory representative of the estate, next of kin, or beneficiary certify in detail a description of the reasons for failure to disclose same in the original return and filed directly with the Transfer Inheritance Tax Branch.
Certain property in the name of or belonging to the decedent cannot be transferred without the written consent of the Director, Division of Taxation. This consent, commonly known as the "waiver", will not be granted until any tax due has been paid or provided.
Notwithstanding the waiver provisions above, any financial institution may release up to 50% of any bank account, certificate of deposit, etc. to the survivor, in the case of a joint account, the executor, administrator or other legal representative of a RESIDENT decedent's estate. This procedure is referred to as a BLANKET WAIVER. This procedure is not available for the transfer of stocks and bonds. For a detailed explanation see N.J.A.C 18:26-11.16.
A Self Executing Waiver, Form L-8 has been created for Class "A" beneficiaries in the estates of Resident decedents. This form may be used in two instances:
1. Transfers to a surviving spouse in estates of decedents dying on or after January 1, 1985.
2. Transfers to a surviving spouse or any other Class "A" beneficiary in estates of decedents dying on or after July 1, 1988.
Use of this form may eliminate the need to file a formal Inheritance Tax return.
This form is to be filed with the financial institution which will then be authorized to release the subject asset without the necessity of receiving a waiver from the Division.
A Request For A Real Property Tax Waiver, Form L-9, has been created for Class "A" beneficiaries in the estates of RESIDENT decedents. This form may be used in two instances:
1. Transfers to a surviving spouse in estates of decedents dying on or after January 1, 1985 and the decedent's interest was in the decedent's name alone.
2. Transfers to a surviving spouse or any other Class "A" beneficiary in estates of decedents dying on or after July 1, 1988 and the decedent's interest in the real estate was in the name of the decedent alone or with any Class "A" beneficiary.
Use of this form may eliminate the need to file a formal Inheritance Tax return.
This form is to be filed directly with the Transfer Inheritance Tax Branch. If the form is in order the necessary waiver/waivers will be promptly issued.
Neither the L-8 nor the L-9 may be used where it is claimed that a relationship of mutually acknowledged child exists or for the release of a safe deposit box.
Partial Release of Funds
Banks, savings and loan associations, and building and loan associations may release 50% of all funds on deposit with them to the proper party prior to the issuing of a waiver. The full amount on deposit as of the date of death of the decedent must be listed in the inheritance tax return.
Unpaid inheritance taxes constitute a lien on real property and tax waivers are required to transfer real estate. However, real property held by husband and wife as "tenants by the entirety" (names of both husband and wife appear on the deed) in the estate of the spouse first dying need not be reported and may be transferred without waiver, regardless of the date of death.
In addition, a membership certificate or stock in a cooperative housing corporation held in the name of a decedent and a surviving spouse as joint tenants with right of survivorship is also exempt, but a waiver is required for this transfer.
Automobiles, Household And Personal Effects
Waivers are not required for automobiles, household goods, accrued wages or mortgages, but these must be reported in the return.
Necessary forms and instructions concerning the procedure to be followed in completing an inheritance tax return may be obtained at the Division of Taxation Regional Office. The office where residents of Middlesex County can obtain these forms is:
Trenton, NJ 08646
Federal Estate Tax Return
The law requires that a copy of the Federal estate tax return be filed with the Inheritance Tax Branch within 30 days after the filing of the original with the Federal government. Also, the Branch must receive a copy of any communication from the Federal government making any final change in the return, or confirming, increasing or reducing the tax shown to be due.
Unified Estate And Gift Tax Credit
A single unified credit against both estate and gift taxes is available. This credit, to the extent available, reduces dollar-for-dollar estate and gift taxes computed under the unified rates schedule.
The Tax Relief Act of 2012 provided that each person can leave a $5,250,000 estate tax free. No estate or gift taxes would be payable on an estate which is valued at less than $5,250,000. With amounts over $5,250,000 taxed at federal rate of 40%.
Please note: The tax rate is subject to change by Congress.
Federal Estate & Gift Tax
Contemplation of Death
Gifts made within three years of death are not included in donor's gross estate; exceptions are life insurance, transfers with a retained life estate, transfers and transfers under powers of appointment; gifts made within three years of death are included in gross estate to determine qualification for current use evaluation, deferred payment of estate tax and Section 303 redemptions, etc.
Gift Tax (Annual Exclusion)
New Jersey does not levy a tax on gifts, except in anticipation of death. Any gift made within 3 years of death is presumed to be in anticipation of death and may be subject to New Jersey Inheritance Tax.
An individual may give an amount up to $14,000 to any one person during a calendar year, exempt from tax. A married couple can give up to $28,000 to a person yearly without tax. Any number of tax-free gifts may be made during a year.
If you make gifts to one person of more than $14,000 during the calendar year, file a Federal Gift Tax Return with the District Director of Internal Revenue.
Federal Marital Deductions
Presently, unlimited amounts of property can be transferred between spouses without estate or gift tax.
Note: Certain transfers of an interest in property do not apply under this deduction. To determine whether this last note applies to your particular case, you may wait to contact your attorney or the Internal Revenue Service.
Filing Federal Estate Tax Returns
Form 706 must be filed and any tax due must be paid within 9 months. The nearest Internal Revenue office will furnish tax Form 706:
If your estate is subject to Federal Estate Tax, you may want to seek professional assistance in estate planning. Consideration of tax aspects can save heirs money.