New Jersey is one of a handful of states that imposes inheritance taxes on the recipient of a bequest. Unless you are a direct lineal relative or meet the exemption requirements, chances are you will owe inheritance taxes.
New Jersey law determines whether or not to impose inheritance taxes based on your classification. There are four (4) beneficiary classifications in New Jersey and each has its own tax rate.
All lineal relations including: spouses, parents, children, grandparents, grandchildren, adopted children, and issue of legally adopted children and stepchildren are considered Class A beneficiaries and they are exempt from any inheritance taxes.
Class C beneficiaries are taxed at rates of 11 to 16 percent after a $25,000 exemption. Beneficiaries in this class include: brothers, sisters, half brothers and sisters, wife or widow of a son, and husband or widower of a daughter.
Every other kind of familial or friend beneficiary is taxed at rates of 15 to 16 percent depending on the amount of the bequest. If the bequest is less than $500, there is no tax. A bequest of $500 or more is taxed at 15 percent, and the rate increases to 16 percent if it is more than $700,000.
A final class of beneficiaries that are not taxed is entities like educational institutions, churches, and public libraries, which are Class E beneficiaries.
For the individual who is planning on bequeathing large sums of money or valuable items to friends and distant relatives, depending on the financial situation of the recipient, it may be prudent to consider setting aside additional money in an irrevocable insurance trust or in the residuary of the estate for payment of inheritance taxes.
Information contained in this article is not intended to be legal advice nor applicable to all situations. For legal assistance, contact an attorney in your state of residence. You can visit Arleen’s website at arleenrichards-law.info.
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