New Jersey is nicknamed the Garden State, and its garden has grown a doozy of a death tax!
New Jersey is one of five states that applies only an inheritance tax on wealth transfer. The difference between an estate tax and an inheritance tax is that the estate tax is a tax on wealth transfer from an estate, while an inheritance tax is a transfer tax placed on the recipient of an estate distribution.
This may seem a little bit acey-deucey, but it really isn’t. Since estates will likely have multiple heirs or beneficiaries, the amount where the inheritance tax is applied should be on a smaller amount than a tax applied on an entire taxable estate. But this is where the folks in Trenton are tricky: the inheritance tax exemption for some heirs is only $500. So, anything that is inherited that is worth more than $500, the inheritor has to pay a tax…and pay it fast. They really don’t mess around in New Jersey!
The Unger Company understands that New Jersey’s inheritance tax does have some individuals who are exempt, such as a spouse, civil union or domestic partner, child, grandchild, parent, or grandparent. These are defined as Class A beneficiaries, and Class A and Class E beneficiaries – which includes qualified charities, religious institutions, educational and medical institutions, and others – are exempt from the tax.
Things get more tangled between those classes. Class C beneficiaries, which include siblings, spouses of children and step children, have a $25,000 exemption before the tax kicks in, and it scales between 11- and 14-percent and jumps to 16-percent for amounts beyond $1.7 million. Class D beneficiaries, which are defined as “Anyone not in Classes A, C or E,” only have the $500 exemption and will pay 15-percent on amounts up to $700,000, and 16-percent if the inheritance is higher.
So, if a rich uncle leaves a niece a property with an agreed upon market value of $1 million, the folks in Trenton become the beneficiaries of the beneficiary to the tune of about $153,000 before deductions, if any apply. How possible is this in NJ? Very possible! According to Zillow, there were more than 30 towns where the typical home value was more than $1 million. That means someone inheriting property in Alpine, Short Hills, Deal, Avalon, or Stone Harbor is going to get a visit from the tax man.
And, the tax man wants his money promptly! If the paperwork isn’t filed with the state within eight months of the grantor dying, the state will smack you with a 10-percent penalty. It sounds like borrowing money in The Sopranos instead of inheriting a nice house!
This is only a high-level view of the death tax landscape in New Jersey, but it gives you a good idea of why if you are a high-net-worth (HNW) or ultra-high-net-worth individual (UHNW), you need a strategist like The Unger Company to help you plan and strategize to protect your these people you love.
The Unger Company, Ltd. was established in 1974 by Harold Unger to manage the kind of estate tax and inheritance tax problems high net worth (HNW) and ultra-high net worth (UHNW) families need to navigate – like those we just described in New Jersey. The Unger Company brings its specialized knowledge and detailed approach to working with the legal, financial, and accounting team of a family in building a maximum defense against burdensome estate and inheritance taxes. Contact us through our website or call us at 212-755-4777 to learn what we can do for you.
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The Unger Company, Ltd. does not seek to practice law for clients and these published items are intended only to be informational in nature.
