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Understanding Estate Taxes in New Jersey
There is no single "estate tax" question that applies to every estate.
New Jersey inheritance tax, income earned by an estate or trust, the
deceased person's final income tax return, and federal estate tax are
separate matters.
One important distinction is that New Jersey no longer imposes its
Estate Tax on estates of people who died on or after January 1, 2018.
New Jersey's Inheritance Tax, however, still exists.
This means the size of an estate alone does not tell an executor whether
a New Jersey tax issue exists. Who inherits, what property is involved,
and whether the estate continues to earn income can all matter.
Official source:
New Jersey Division of Taxation
Inheritance Tax
Who Inherits Can Matter
New Jersey Inheritance Tax is based largely on the relationship between
the person who died and the person receiving the property. That makes it
different from an estate tax based primarily on the overall value of an
estate.
Class A beneficiaries, including a surviving spouse, parents, children,
grandchildren, and certain other close family members, are generally
exempt from New Jersey Inheritance Tax. Siblings and some other
beneficiaries fall into different tax classes and may be subject to tax.
For an executor, the practical first step is to identify who is receiving
estate property rather than assuming that an estate either is or is not
taxable based solely on its total value.
If a return is required, the appropriate New Jersey inheritance tax
return and supporting documents are filed with the Division of Taxation.
The state's filing guidance can help determine which return or exemption
procedure may apply.
Official references:
NJ Inheritance Tax
·
Forms & Instructions
Property Transfers
Tax Waivers & Estate Property
A tax waiver is a document that allows certain estate property to be
transferred without the State of New Jersey continuing to assert its
inheritance-tax lien against that property.
This issue often becomes visible to families when an executor is trying
to transfer an account or sell or transfer New Jersey real estate.
A title company, financial institution, or other party may ask whether
the required tax-waiver documentation has been completed.
Forms L-8 and L-9
Form L-8 is a self-executing waiver that may be used in qualifying
estates to release certain bank accounts, stocks, bonds, and brokerage
assets passing to eligible Class A beneficiaries. Form L-9 serves a
different purpose: it is used to request a tax waiver for qualifying
New Jersey real property.
Form 0-1
When a formal tax waiver is required, Form 0-1 is issued by the New
Jersey Division of Taxation. It is not a form that an executor simply
completes and signs independently.
Because tax-waiver requirements depend on the beneficiaries, property,
and circumstances of the estate, an executor should determine what is
actually required before a planned transfer or closing.
Official references:
Tax Waiver Guidance
·
L-8, L-9 & Related Forms
Estate & Trust Income
Income Taxes After a Death
The deceased person's final individual income tax return and income
earned after death are two different matters.
After death, an estate or trust may continue to receive interest,
dividends, rent, investment income, or proceeds from other income-producing
assets. Income received after death may be reportable by the estate or
trust rather than on the deceased person's final individual income tax
return.
New Jersey uses Form NJ-1041 for fiduciary income tax reporting when
filing requirements apply. Federal fiduciary income tax requirements
may also need to be considered.
Good estate records become particularly important here. Executors and
trustees should keep track of income received after death, expenses paid
by the estate or trust, distributions, and supporting financial records.
Official source:
New Jersey Income Tax Forms & Instructions