Transfer Inheritance Tax
New Jersey imposes a transfer Inheritance Tax, at graduated rates, on property having a total value of $500 or more which passes from a decedent to a beneficiary. Generally, an inheritance tax return must be filed and the tax paid on the transfer of real or personal property within eight months after the death of a decedent. Property passing to a decedent's surviving spouse, parents, grandparents, children, stepchildren or grandchildren is entirely exempt from the tax. If a decedent's death occurs on or after February 19, 2007, property passing to a decedent's surviving civil union partner is entirely exempt from the tax. If a decedent's death occurs on or after July 10, 2004, property passing to a decedent's surviving domestic partner is entirely exempt from the tax."
In many instances, if all of a decedent's property passes to a surviving spouse/civil union partner, surviving domestic partner, children, stepchildren, parents, grandparents or grandchildren, it will not be necessary to file an Inheritance Tax return with the Division of Taxation. In such cases, Form L-8
may be used to secure the release of bank accounts, stocks, bonds and brokerage accounts and if there was any real property in the name of the decedent, Form L-9
(or Form L-9NR for a non-resident decedent) may be filed to release the State's lien on the real property.
Note that the offspring of a biological parent conceived by the artificial insemination of that parent who is a partner in a civil union couple is presumed to be the child of the non-biological partner. In the Matter of the Parentage of the Child of Kimberly Robinson, 383 N.J. Super. 165; 890 A.2d 1036 (Ch. Div. 2005) (Non-biological parent of New York registered domestic partnership recognized in New Jersey, presumed to be the biological parent of child conceived by the other partner through artificial insemination where the non-biological partner has “show[n] indicia of commitment to be a spouse and to be a parent to the child.”). Also, Section 4e of the Act states that “The rights of civil union couples with respect to a child of whom either becomes the parent during the term of the civil union, shall be the same as those of a married couple with respect to a child of whom either spouse or partner in a civil union couple becomes the parent during the marriage.”
The Civil Union Act does not affect the treatment of domestic partners for purposes of the Transfer Inheritance Tax unless domestic partners enter into a civil union, thus ending their domestic partner
The New Jersey Estate tax is based upon the Federal Estate tax credit for state death taxes which was allowable under the provisions of the Internal Revenue Code in effect on December 31, 2001. The Federal Estate tax does not have a provision providing a deduction for property passing to a domestic partner.
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 one 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 Revenue Code in effect on December 31, 2001, is permitted to the surviving civil union partner for New Jersey estate tax purposes. In these cases, a “dummy” 2006 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.
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).
A Simplified Tax System method may also be used, but only 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. 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.