Estate and Inheritance Taxes in New Jersey
Does New Jersey have estate and inheritance tax obligations?
New Jersey does have an inheritance tax for probate beneficiaries, but does not currently impose an estate tax for decedents passing after January 1, 2018. At it’s origin, New Jersey instituted an estate tax (also referred to as a “death tax”) in 1934 based upon the size of the entire probate estate. While there is no longer an estate tax imposed on probate estates for persons dying on or after January 1, 2018. there is an obligation for an estate to file an estate tax return (IT-Estate), in addition to an inheritance tax return (I-TR), that must be filed and audited for those dying prior to January 1, 2018. Simply put, this means for any probate estate before January 1, 2018, an estate tax return and an inheritance tax return must be filed with the New Jersey Division of Taxation; for all probate estates after January 1, 2018, only an inheritancee tax return may be required.
How does the State of New Jersey tax probate estates?
If estate and inheritance taxes seem confusing, don’t worry - they are! Unfortunately, the law has a tendency to use the same words with different intentions. Probate Estates are comprised of a decedent’s assets and liabilities. Probate assets marshalled by the executor or administrator are called “corpus”. All assets, whether received by the executor or administrator or not, are either taxable assets or non-taxable assets; together, these combine to create the gross taxable estate. Allowable deductions may be made from the gross taxable estate, leaving the net taxable estate. Out of the net taxable estate, the portions due non-lineal and spousal beneficiaries is taxed at the current rate and the taxed amount is due to the Division with the inheritance tax return. It is imperative that taxes are filed as soon as practicable as there is a 10% per annum penalty that accrues.
The inheritance tax return is filed with the State of New Jersey, Division of Taxation, Estate and Inheritance Tax Branch (the “Division”), and must filed so the Division is aware of all taxed and non-taxed portions of the estate. Nevertheless, it is beneficial to file either the inheritance tax return or a self-proving waiver as the Division will provide a waiver to the personal representative (i.e. executor or administrator) which, absent fraud or omission, acts as clear title to all real and personal property covered under the waiver. So, a personal representative filing to clear real property with the Division can then file that waiver with the county clerk and sell the property without delay or issue. Otherwise, the personal representative of the probate estate would have to do so during the sale of the property, which could cause delays and frustrated buyers!
Filing with the Division is rather straightforward. The inheritance tax return is a thirteen page document which the executor or administrator must complete, sign, notarize, and mail in to the Division with exhibits. An executor or administrator must mail in original copies of the death certificate, Letters of Administration or Letters Testamentary, and all copies related to the return. This includes deeds, trust agreements, evidence proving the calculation of date of death stock holdings, bank information, and so on. Since an executor or administrator must file the taxes while simultaneously administrating the estate, it can be challenging for an individual to manage these tasks and documents themselves. An executor or adminsitrator can request a six-moonth extension to file the tax return, but if the request for an extension is filed late, it will be denied.
Inheritance taxes in New Jersey are quite simple: spouses and lineal descendants are not subject to the tax. Lineal descendants include children, step-childre, parents, and step-parents (so long as the proper legal adoptions/guardianships have been entered). There are four classes: A, C, D, and E (Class “B” beneficiaries were eliminated in 1963). Class “D” beneficiaries are everyone not in Class “A” or “C”. Class “E” beneficiaries are, over-generalizing, qualifying non-profits, charities, and the State of New Jersey. At the very least, Class “C” and “D” beneficiaries of a probate estate create an obligation on behalf of the executor or administrator for filing an inheritance tax return - even if the amount is within the exemption and disclaimers are properly filed.
Are there penalties for not filing estate and inheritance taxes?
The executor or administrator of a New Jersey probate estate has a statutory period to file the inheritance tax return. Should the executor or administrator fail to file the taxes within the statutory nine-month period, penalties begin to accrue against the estate. This accrual occurs even if a return has not been filed, if the Division has not been notified, and even if no executor or administrator was ever appointed to probate the estate. The penalty is ten percent (10%) per year imposed on taxes not paid. For instance, if a probate estate owes $1,000 in inheritance taxes, and those taxes are not timely paid for one whole year, the estate accrues a penalty of $100. Thus, the estate must pay $1,100 to satisfy the estate and inheritance tax obligation. However, the penalty is calculated on a per diem, so the amount will actually be more because it must be calculated up until the payment date. So, the estate could wind up paying $1,108.22 is the taxes are paid one year and thirty days late.
In fact, in some instances, failure to timely file an inheritance tax return (or apply to the Division for a tax waiver for real property) can result in a lien being placed upon any real property for up to 15 years. While there are certain deductibles and exemptions, inheritance taxes must be filed and payed to avoid the penalty. Failure to file and pay the taxes within this period would make the estate liable for the penalty. In certain instances, the Executor, Administrator, and/or Administrator C.T.A. may even be personally liable for the tax and penalty, so it may be best practice to seek a probate attorney to assist you in the filing of these returns.
If you need to file inheritance taxes, or are looking for a New Jersey probate attorney to represent or explain taxes to you, you can email me at Ranalli@ranalli-law.com. Your rights and privacy are 100% protected. We never sell or share your information. No one wants spam email and I respect your right to privacy. I am here to help you.
