New Jersey Estate Tax

Even if the estate you’re handling doesn’t owe federal estate tax, it might well owe New Jersey a separate estate tax.  For 2011 and 2012 deaths, estates with a total value of more than $675,000 are subject to the New Jersey estate tax. (The governor has proposed raising the exemption to $1 million.)

There is also an inheritance tax in New Jersey. Unlike the estate tax, the inheritance tax rate is based how closely an inheritor is related to the deceased person.

Which Estates Must File

If the estate of a New Jersey resident has a gross value of more than $675,000, the executor must file a New Jersey estate tax return. The estates of nonresidents do not have to pay the tax. (Federal estate tax returns are required only for estates of more than $5.12 million for deaths in 2012.) Deductions may reduce the amount of the taxable estate, so that the estate may not actually end up owing any tax.

What Is Included in the Gross Estate

To determine whether or not a New Jersey estate tax return is required, add up the value of the deceased person’s gross estate. Count all kinds of assets, including:

• Real estate in New Jersey
• Bank accounts, certificates of deposit, and investment accounts, including those for which a payable-on-death beneficiary was named
• Vehicles and other personal property
• Proceeds from life insurance policies on the deceased person’s life, unless that person didn’t own the policy
• Retirement account funds
• Business interests (sole proprietorship, limited liability company, or small corporation)

If any assets were owned with someone else, count only the value of the deceased person’s interest. For example, if the deceased person owned a house with her husband, include half of its value. If, however, property was owned in joint tenancy with someone else, then include the total value except for funds that the other person contributed.

Also include these assets:

• Taxable gifts made during life. If the deceased person made taxable gifts (more than the annual exclusion amount, which is currently $13,000 per year per recipient), then add the taxable amount of those gifts to the value of the estate.
• Some transfers made fewer than three years before death. If the deceased person transferred a life insurance policy to an irrevocable life insurance trust within three years of death, you must include the value of the policy in the estate.
• Assets held in a trust. The value of assets the deceased person held in a revocable living trust or other trusts the deceased person controlled is included in the taxable estate.

No ‘Portability’ for Spouses

Beginning with deaths in 2011, federal tax law allows spouses to share their individual federal estate tax exemptions. If the first spouse to die doesn’t use up his or her entire $5 million federal estate tax exemption, then after the second spouse dies, his or her estate can use anything that was left over by the first spouse. This is called “portability” of exemptions.

New Jersey does not allow spouses to share their individual exemptions.

Property Left to a Surviving Spouse

Property left to a surviving spouse or civil union partner is exempt from state estate tax, no matter what the amount. This is in contrast to the federal government, which does not treat same-sex couples, whether they are legally married under state law or civil union partners, like married couples.

Forms to File

New Jersey offers two filing methods.

Simplified Form Method

If the estate doesn’t have to file a federal estate tax return, it can use this method. You must submit the New Jersey estate tax return (Form  IT-Estate), a state inheritance tax return (Form IT-R), a copy of the will, and a copy of the deceased person’s last federal income tax return filed before death. The deadline is nine months after the death. Any tax due must be paid when the return is filed; interest accrues on late payments.

Form 706 Method

The estate submits the New Jersey estate tax return (Form  IT-Estate), a copy of the federal estate tax return (IRS Form 706), a state inheritance tax return (Form IT-R), a copy of the will, and a copy of the deceased person’s last federal income tax return filed before death. The filing deadline is nine months plus 30 days from the deceased person’s death. Payments must be made when the return is filed; interest accrues on late payments.

If there’s a surviving civil union partner, the estate must prepare and submit a “dummy” Form 706, prepared as though the IRS treated a surviving civil union partner just like a surviving spouse.

Estate tax forms and instructions are available from the New Jersey Treasury Department’s Division of Taxation.

Get Expert Advice

If you are required to file an estate tax return, either with the state or the IRS, it’s time to get expert help. Both state and federal returns are long and complicated. Hire a lawyer or CPA who has lots of recent experience with New Jersey estate tax returns and procedures; the fee will probably be several thousand dollars, but it will be worth it.