The New Jersey estate tax was revised on July 1, 2002 and made to apply retroactively to decedents dying after December 31, 2001. Prior to its revision the New Jersey estate tax was a "sponge" or "pickup" tax whose sole purpose was to absorb any credit for state inheritance, estate, succession or legacy taxes available in the Federal estate tax proceeding. The revised New Jersey estate tax is decoupled from the Federal estate tax.
The New Jersey estate tax is now imposed upon the transfer of the estate of every resident decedent which would have been subject to a Federal estate tax under the provisions of the Internal Revenue Code in effect on December 31, 2001. The tax is either the maximum credit for state inheritance, estate, succession or legacy taxes allowable under the provisions of the Internal Revenue Code in effect on December 31, 2001 or an amount determined pursuant to the Simplified Tax System prescribed by the Director, Division of Taxation.
- The person or corporation responsible for payment of the tax may choose the Form 706 method or the Simplified Tax System method of filing the New Jersey estate tax return.
- A New Jersey estate tax return must be filed if the decedent's gross estate plus adjusted taxable gifts as determined in accordance with the provisions of the Internal Revenue Code in effect on December 31, 2001 exceeds $675,000. It must be filed within nine months of the decedent's death (nine months plus 30 days if the Form 706 method is used). Additionally, a copy of any Federal estate tax return filed or required to be filed with the Federal government must be submitted within 30 days of the date it is filed with the Internal Revenue Service and a copy of any communication received from the Federal government must be submitted within 30 days of its receipt from the Internal Revenue Service.
- The New Jersey estate tax is due on the decedent's date of death and must be paid within nine months. Any tax not paid within nine months generally bears interest at the rate of ten percent (10%) per annum from the expiration of nine months until paid. The Director may extend the time for the filing of the return but not for the payment of the tax. Payments are first credited in satisfaction of accrued interest.
- The Form 706 method requires that the Form IT-Estate be prepared and filed along with a 2001 Form 706 completed in accordance with the provisions of the Internal Revenue Code in effect on December 31, 2001. The New Jersey estate tax is based upon the Federal credit for state inheritance, estate, succession or legacy taxes as it existed on December 31, 2001 and not as it existed on a decedent's date of death.
- If a Federal estate tax return has or will be filed or is required to be filed with the Internal Revenue Service, any election made by a taxpayer to treat an asset in a particular manner for Federal estate tax purposes must also be made for New Jersey estate tax purposes. A taxpayer may not make one election for Federal purposes and another for State purposes with the following exception. If the decedent was a partner in a civil union and died on or after February 19, 2007, survived by his/her partner, a marital deduction equal to that permitted a surviving spouse under the provisions of the Internal Code in effect on December 31, 2001, is permitted for New Jersey estate tax purposes. In these cases, the 2001 Form 706 should be completed as though the Internal Revenue Code treated a surviving civil union partner and a surviving spouse in the same manner.
- The Director has prescribed a Simplified Tax System method pursuant to the provisions of the revised statute. This method may only be used in those situations where a Federal estate tax return has not and will not be filed nor is a tax return required to be filed with the Internal Revenue Service. The Simplified Tax System is not intended for use in all estates. Any attempt to develop a tax system which could be used in all situations and which would produce a tax liability similar to that produced using the Form 706 method would, of necessity, result in a tax system as complex as the Federal tax itself. The Simplified Tax System requires that a Form IT- Estate be prepared and filed along with a New Jersey inheritance tax return (Form IT-R) completed in accordance with the provisions of the inheritance tax statute in effect on December 31, 2001.
The taxable value of the estate using the Simplified Tax System method is the net estate as determined and reflected on line 7 of the New Jersey inheritance tax return (Form IT-R) adjusted to reflect:
- Real and tangible personal property located outside of New Jersey; plus
- The proceeds of life insurance on the decedent's life owned by the decedent (or transferred within three (3) years of his/her death) paid to any beneficiary other than the estate, executor or administrator; plus
- All transfers made by the decedent within three years of death not included in the inheritance tax net estate ; plus
- In the event that the decedent was a surviving spouse or a civil union partner and received qualified terminable interest property (QTIP) from the predeceased spouse or civil union partner for which a marital deduction was elected for Federal and/or New Jersey purposes, the full value of the QTIP property; plus
- Any other property includable in the Federal gross estate under the provisions of the Federal Internal Revenue Code in effect on December 31, 2001; less
- Property passing outright to the decedent's surviving spouse or civil union partner who died on or after February 19, 2007 provided he/she was a U.S. citizen on the decedent’s date of death. This deduction does not include QTIP (Qualified Terminable Interest Property) or similar property. QTIP property is property that passes from the decedent and in which the surviving spouse or civil union partner has a qualifying income interest for life. The surviving spouse or civil union partner has a qualifying income interest for life if he/she is entitled to all or a specific portion of the income from the property payable annually or at more frequent intervals, or has a usufruct interest in the property (right to enjoy the property) for life, and during the surviving spouse's or civil union partner’s lifetime no person has a power to appoint any part of the property to any person other than the surviving spouse or civil union partner. Additionally, the surviving spouse or civil union partner must be a citizen of the United States on the decedent's date of death. If QTIP property or the surviving spouse's or civil union partner’s citizenship is a significant factor, consideration should be given to the use of the Form 706 method of filing; less
- Property passing for charitable purposes.
- The New Jersey estate tax is reduced by the portion of the tax that is attributable to property located outside New Jersey. The amount of the reduction is calculated by multiplying the tax due on the entire gross estate wherever located by a fraction the numerator of which is the gross value of property located outside the state and the denominator of which is the New Jersey entire gross estate wherever located. In general, for purposes of the calculation, intangible personal property is considered to be located in New Jersey regardless of where it may actually be located.
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Gross Value of Property Located Outside New Jersey |
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______________________________ |
x Tax Due on Entire Gross Estate Wherever Located |
= Allowable Reduction |
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New Jersey Entire Gross Estate Wherever Located |
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- A decedent’s interest in a family limited partnership is valued in accordance with the provisions of N.J.A.C. 18:26-3A.2(b). A family limited partnership is a limited partnership in which more than 50% of the partners are related by blood or marriage and which does not have a true business purpose.
- Unlike the prior New Jersey estate tax, the revised estate tax is a lien on all the property of a decedent. Additionally, the statute provides that the decedent's property may not be transferred without the written consent of the Director. The tax waiver form releases both the inheritance and the estate tax liens and permits the transfer of the property listed thereon for both inheritance and the estate tax purposes. Waiver requirements for both the inheritance and the estate tax are set forth in N.J.A.C. 18:26-11.1 to N.J.A.C. 18:26-11.32.
- Form L-8 may be used in many instances to secure the release of bank accounts, stocks, bonds and brokerage accounts without the necessity of obtaining a tax waiver from the Division. Form L-9 may be used in many instances to secure a tax waiver for realty without the necessity of filing a tax return with the Division. Form L-8 may not be used if the taxable estate plus adjusted taxable gifts as determined in accordance with the provisions of the Internal Revenue Code in effect on December 31, 2001 exceeds $675,000. Form L-9 may not be used if the gross estate plus adjusted taxable gifts as determined in accordance with the provisions of the Internal Revenue Code in effect on December 31, 2001 exceeds $675,000. In situations where these forms cannot be used Form L-4 may be used to request the issuance of waivers prior to the filing of a New Jersey estate tax return. When reviewing a request for the early issuance of tax waivers the Division will withhold waivers and/or require a payment on account or other security sufficient to insure the payment of the tax and interest for which the decedent's estate is ultimately determined to be liable.
Questions related to the revised New Jersey estate tax may be forwarded to:
The Division of Taxation, Individual Tax Audit Branch
Inheritance and Estate Tax
Attention: Estate Tax Section
PO Box 249
Trenton, New Jersey 08695-0249
Additional information may also be obtained by calling 609-292-5033.