AVERY & AVERY
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Vol. L · No. I FOL. LIArticles

Avery & Avery, Esqs. Ridgefield, NJ Robert W. Avery, Esq.

The 'Death Tax' in NJ — Inheritance, Estate, and Federal

RW·A

By Robert W. Avery, Esq.

Founding Partner · Former Mun. Ct. Judge

By Robert W. Avery, Esq.

“Death tax” is a colloquial umbrella term that bundles together NJ’s inheritance tax, NJ’s (now-repealed) estate tax, and the federal estate tax. The three regimes are distinct. The practical impact on NJ residents has changed materially since the 2018 NJ estate-tax repeal. This post walks through what NJ residents should know today.

Estate-tax landscape walkthrough. Not legal advice. Free consultation: (201) 943-2445.

The Three Regimes Today

NJ Inheritance Tax — Active

Tax based on the relationship between the decedent and the beneficiary. N.J.S.A. 54:34-1 et seq.

  • Class A (spouse, descendants, parents) — exempt
  • Class C (siblings, in-law children) — 11-16%
  • Class D (all others, except qualifying charities) — 15-16%
  • Class E (qualifying charities) — exempt

NJ Estate Tax — Repealed for 2018+ Decedents

Repealed effective January 1, 2018. Decedents dying after that date pay no NJ estate tax. Decedents dying before that date were subject to a $675K-threshold tax.

Federal Estate Tax — Active

Tax based on the gross value of the worldwide estate.

  • 2024 threshold: $13.61M individual / $27.22M married
  • 2025 threshold: $13.99M individual
  • 2026 threshold: scheduled to revert to ~$7M individual unless Congress extends

Above the threshold, federal rate up to 40%.

What This Means for the Average NJ Resident

A typical NJ middle-class estate today (post-2018, well below federal threshold, leaving everything to spouse and children):

  • Federal estate tax: not applicable — far below threshold
  • NJ estate tax: not applicable — repealed
  • NJ inheritance tax: not applicable — Class A beneficiaries

Bottom line: zero death tax for the typical NJ middle-class estate today.

Where Death Tax Still Bites

The scenarios where NJ death tax remains relevant:

1. High-Net-Worth Estates

Above the federal threshold (~$14M individual currently), federal estate tax applies up to 40%. Planning matters.

2. Class C / D Beneficiaries

When the estate goes to siblings, in-laws, friends, or distant relatives, the NJ inheritance tax applies. Class C: 11-16%. Class D: 15-16%.

3. 2026 Federal Reversion

If Congress does not extend the current federal threshold, the threshold reverts to ~$7M individual in 2026. Estates between $7M and $14M would suddenly become federally taxable.

4. Non-Citizen Spouses

Federal estate-tax marital deduction is unavailable for non-citizen spouses unless QDOT structuring is used.

Planning Today

Practical death-tax planning today centers on:

  1. Class A beneficiary structure — direct bequests to spouse and lineal descendants are tax-efficient
  2. Trust funding for high-net-worth estates approaching the federal threshold
  3. Lifetime gifting within annual exclusions and using the lifetime exemption
  4. Life-insurance ownership through ILITs to keep proceeds out of the taxable estate
  5. Charitable structures for charitably-inclined estates

Common Misconceptions

”There’s a NJ Death Tax”

Loose terminology. NJ has an inheritance tax (relationship- based, narrowly applied). NJ’s estate tax (which would apply broadly) was repealed.

”I Need to Worry About Federal Estate Tax”

Only if your estate approaches $14M. Most NJ residents do not have that exposure.

”Trusts Eliminate Death Tax”

Some trusts can. Revocable living trusts do not. The structure matters.

”Gifts Avoid Death Tax”

Annual gifts within the federal exclusion limit ($18,000 per recipient in 2024) do. Larger gifts use the lifetime exemption and are aggregated with the estate at death.

Frequently Asked Questions

Is there a NJ tax on a spouse’s inheritance?

No. Spouses are Class A and pay zero NJ inheritance tax.

What about life insurance?

Life insurance paid to a named beneficiary is generally not NJ inheritance-tax-subjected. Federal estate-tax inclusion if the decedent owned the policy.

Is the 2018 NJ estate-tax repeal permanent?

It is the current state of the law. Future NJ legislation could reinstate. Current planning operates on current law.

What about NJ income tax on inherited assets?

Inheritances generally not subject to income tax. Specific issues for IRD (income in respect of decedent — like inherited IRA distributions) — those carry income-tax exposure to the beneficiary on distribution.

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