In New Jersey, the tax rate on inheritance varies based on the relationship between the beneficiary and the deceased. While some heirs are exempt from paying inheritance tax, others may owe up to 16%. Understanding these tax rates can help beneficiaries plan accordingly and avoid unexpected financial burdens.
Inheritance Tax Rates in New Jersey
New Jersey classifies beneficiaries into different categories, each with its own tax treatment:
Class A Beneficiaries – Exempt from inheritance tax.
This group includes:
Spouses
Domestic partners
Parents
Grandparents
Children (including stepchildren and adopted children)
Class B Beneficiaries –
This classification no longer exists under NJ tax law.
Class C Beneficiaries – Subject to tax but at a reduced rate.
This group includes:
Siblings
Sons-in-law and daughters-in-law
Surviving spouses of deceased children
Tax rates for Class C beneficiaries are:
0% on the first $25,000 inherited
11% on amounts between $25,001 and $1,100,000
13% on amounts between $1,100,001 and $1,400,000
14% on amounts between $1,400,001 and $1,700,000
16% on amounts above $1,700,000
Class D Beneficiaries –
This group includes all other individuals (e.g., friends, distant relatives, and non-related heirs). The tax rates are:
15% on inheritances up to $700,000
16% on inheritances exceeding $700,000
Class E Beneficiaries –
Exempt from inheritance tax. This includes charities, religious institutions, and other tax-exempt organizations.
Other Considerations
New Jersey does not impose an estate tax, but the federal estate tax may apply to estates exceeding $13.61 million (as of 2024). Additionally, life insurance proceeds payable to a named beneficiary are not subject to inheritance tax in NJ.
Planning for Inheritance Tax
To reduce tax liabilities, estate planning strategies such as gifting assets during one’s lifetime, setting up trusts, or designating tax-exempt beneficiaries can be useful. Consulting with a tax professional can ensure that the inheritance process is as tax-efficient as possible.