Despite the passage of certain tax cuts and income threshold adjustments that were included in the president’s tax reform package, the federal estate tax was not repealed. The good news is that the threshold at which assets can be taxed has been doubled to approximately $11 million ($22 million for married couples). This is good news for New Jersey residents, but they will be even more pleased to discover that they will not have to pay estate taxes to the state.
Starting this year, the estate tax will no longer be imposed on the decedents who pass away on or after January 1, 2018. This is a change from last year, when the state raised the estate tax exemption from $675,000 to $2 million, which meant the individual could pass on their property valued at up to $2 million to their heirs without being subject to tax liabilities. The rates varied depending on the value of the transfer and other factors (from 4.8% to 16%).
Although the estate tax has been repealed, the inheritance tax still remains in effect. The executor, administrator or heir at-law may be required to file an Inheritance Tax return. If so, it must be done within eight months of the day that the decedent passed away. If tax is due, then the tax on the transfer of taxable real or personal property must be paid within that eight-month period. Failure to do so will result in accruing interest at an annual rate of 10% on top of the amount of the unpaid tax.
If you are a close relative of the decedent (such as a surviving spouse, parent, child or grandchild), you owe no inheritance taxes. A spouse or partner of the decedent’s late children and a decedent’s siblings are exempt from the first $25,000, but the next $1,075,000 is taxed at 11%, then at 13% on the next $300,000 and again at 14% at the next $300,000, up to 16% for transfers over $1.7 million. Nonrelatives are taxed at 15% on the first $700,000 (unless the transfer is valued at less than $500) and at 16% over $700,000. Beneficiaries that are religious, institutional, governmental or nonprofit institutions are exempt from taxes.
If you have to pay inheritance taxes, you will need to submit an Inheritance Tax Return; if not, you may wish to file an Affidavit and Self-Executing Waiver with each financial institution to obtain the release or transfer of intangible personal assets, such as bank accounts, stocks, bonds and brokerage accounts. You may also file an Affidavit for Resident Decedent Requesting Real Property Tax Waiver(s) with the Tax Division to request the release of the state’s lien on any real property that belonged to the decedent.
You may file for an extension on the return, but you will not receive an extension to pay the tax. To request more time to file the return, you need to complete For IT-EXT, Inheritance and Estate Tax Application for Extension of Time to File a Return.
If you have any questions regarding estate planning, the probate of an estate, or New Jersey’s inheritance tax, contact our office by calling 1-833-RINALDO (833-746-2536).