Being the beneficiary of a will in New Jersey means you may have to pay inheritance tax. The amount of tax owed depends on the relationship between you and the deceased and the estate’s value. It is essential to understand the different types of inheritance taxes, their rates, and how they might affect you as a beneficiary.
Inheritance tax; what it is
Inheritance tax is a state tax imposed on transferring property or money from one person to another upon death. It is based on the relationship between the deceased and the beneficiary and the estate’s value. In New Jersey, inheritance tax is paid by beneficiaries unrelated to the deceased.
How inheritance tax works
When the deceased passes away, their estate pays inheritance tax. The probate court oversees the distribution of assets from the estate to heirs and beneficiaries. The estate executor is in charge of filing and paying this tax. The amount of inheritance tax that needs to be paid depends on the relationship between the deceased and the beneficiary and the estate’s value.
In New Jersey, the inheritance tax rate for beneficiaries related to the first degree of consanguinity is 0%. To be related within the first degree of consanguinity, the beneficiary must be a spouse, parent, child, grandparent, grandchild, brother or sister. However, if the beneficiary is unrelated in this way, they must pay taxes based on the estate’s value.
For estates valued above $ 1,700,000, the tax rate for non-related beneficiaries is 16%. For estates valued between $ 1,400,000 and $1,700,000, the tax rate is 14%. For estates between $1,100,000 and $1,400,000, the tax rate is 13%; for estates between $25,000 and $1,100,000, the tax rate is 11%. Estates valued below $25,000 are exempt from inheritance tax.
This rate might differ depending on the deceased and beneficiary relationship.
Understanding inheritance tax is essential for being a beneficiary. Knowing the different types of inheritance taxes, their rates, and how they might affect you as a beneficiary can help you prepare for the costs associated with being a beneficiary.