New Jersey is one of the few states that still imposes an inheritance tax, affecting certain beneficiaries who receive assets from a deceased person's estate. While the state eliminated its estate tax in 2018, the inheritance tax remains in place, with rates varying based on the relationship between the beneficiary and the deceased. Understanding how this tax works is essential for estate planning and those expecting to inherit assets.

At Pedrani Law LLC, our New Jersey estate planning attorney can help you plan your estate to limit your tax burden as much as possible. We are ready to help.

Who Pays Inheritance Tax in New Jersey?

New Jersey's inheritance tax applies based on the beneficiary's relationship to the deceased. Unlike estate taxes, which are levied on the estate itself, this tax is imposed on the recipient. It is triggered when the total value of inherited assets exceeds $500 and applies to real estate, cash, securities, and other property transferred upon death.

Classification of Beneficiaries

New Jersey categorizes beneficiaries into different classes to determine their tax obligations:

• Class A Beneficiaries: Fully exempt from inheritance tax. This group includes:

• Spouses, civil union partners, and domestic partners

• Children (including legally adopted children and stepchildren)

• Grandchildren and great-grandchildren

• Parents and grandparents

• Class C Beneficiaries: Includes siblings and the decedent's son-in-law or daughter-in-law. They receive a partial exemption, with the first $25,000 inherited tax-free. Amounts exceeding this threshold are taxed at rates ranging from 11% to 16%.

• Class D Beneficiaries: Includes nieces, nephews, aunts, uncles, and non-relatives. They are taxed 15% on the first $700,000 inherited, with amounts exceeding this taxed at 16%.

• Class E Beneficiaries: Exempt organizations such as charities, religious institutions, and schools.

Key Exemptions and Filing Requirements

Certain assets and beneficiaries are exempt from New Jersey's inheritance tax, including:

• Life insurance proceeds paid directly to a named beneficiary

• Transfers to charitable organizations

• Property inherited by Class A beneficiaries

Executors and administrators must file an inheritance tax return with the New Jersey Division of Taxation, detailing the assets transferred and corresponding tax owed. Payment is due within eight months of the decedent's death, with interest charges of 10% per year for late payments.

Estate Tax vs. Inheritance Tax in New Jersey

New Jersey phased out its estate tax in 2018, meaning estates are no longer subject to taxation based on their total value. However, the federal estate tax may still apply if the estate exceeds the exemption threshold, which is $13.99 million in 2025.

Strategies to Minimize Inheritance Tax

While inheritance tax is unavoidable for certain beneficiaries, there are estate planning strategies to reduce tax burdens:

1. Gifting Assets Before Death

New Jersey does not impose a gift tax, meaning individuals can transfer assets to beneficiaries before death to avoid inheritance tax.

2. Utilizing Trusts

Setting up irrevocable trusts can help shield assets from inheritance tax while ensuring beneficiaries receive their intended inheritance.

3. Naming Class A Beneficiaries

Since Class A beneficiaries are exempt, structuring inheritances to favor spouses, children, or grandchildren can eliminate tax liabilities. There is also pending legislation that would reclassify step-grandchildren as Class A beneficiaries, which could further expand tax-free options for blended families.

4. Charitable Donations

Leaving assets to charitable organizations ensures tax-free transfers while supporting meaningful causes.

Get Help with Pre-Planning Your Estate in New Jersey

New Jersey's inheritance tax remains a significant consideration for estate planning. While Class A beneficiaries are exempt, others may face tax rates of up to 16% depending on their relationship to the deceased. Understanding exemptions, filing requirements, and tax-minimization strategies can help beneficiaries navigate the process effectively. If you are planning your estate or expecting an inheritance, consulting a New Jersey estate attorney can provide valuable guidance tailored to your situation.

Our team at Pedrani Law, LLC can help create a comprehensive estate plan for you. Contact us today for a consultation.