The New Jersey Inheritance Tax: What You Need to Know
New Jersey is one of only a handful of states that still imposes an inheritance tax, a levy on some beneficiaries who receive assets from a deceased person’s estate. Anyone with assets in the Garden State should therefore understand who exactly owes it, how it’s calculated, and what strategies can help reduce or even avoid it. Read on to learn more.
What Is the New Jersey inheritance tax?
The New Jersey inheritance tax is a state tax applied to the transfer of assets from a deceased person to beneficiaries. Unlike an estate tax—paid by the estate before assets are distributed—beneficiaries themselves pay the inheritance tax via executors or administrators who handle the payment on their behalf.
While NJ repealed its estate tax in 2018, the inheritance tax remains very much in effect. One of its most noteworthy (and potentially confusing) aspects is that it’s not a fixed rate, with the amount owed dependent on the deceased-recipient relationship and inheritance value. Various classes of beneficiaries each have their own tax rules to determine whether someone is fully or partially exempt from or fully subject to the tax.
NJ beneficiary classes and tax rates
As mentioned, New Jersey divides beneficiaries into several classes: Class A, Class C, Class D and Class E (Class B was eliminated in 1963). Here’s a bit more about each…
Class A beneficiaries
Class A beneficiaries include spouses, civil union partners, domestic partners, parents, grandparents, children (including adopted children), stepchildren, and lineal descendants such as grandchildren. Class A (and Class E) beneficiaries receive the most favorable treatment as these individuals are entirely exempt from New Jersey’s inheritance tax, no matter how large the inheritance.
Class C beneficiaries
Class C beneficiaries include siblings, sons-in-law, and daughters-in-law. While they’re subject to the inheritance tax, it only applies to amounts over $25,000 (meaning the first $25,000 inherited is exempt) with anything above this taxed per graduated rates as follows:
Example: If your unmarried brother has no children and passes away and you’re the designated beneficiary, you’ll encounter a NJ inheritance tax and would owe $11,000 if your inheritance is $100,000 (for example).
Class D beneficiaries
Class D beneficiaries—including everyone else not considered Class A or Class C such as nieces, nephews, cousins, friends, fiancé(e)s, and unrelated individuals—receive no exemption, meaning the first dollar they inherit may be taxable. Tax rates are a bit more straightforward than those for Class C, with only two tiers as follows:
15% on any amount up to $700,000 (unless the amount is less than $500)
16% on any amount over $700,000
Example: If you pass away and left an inheritance for your niece and nephew valued at $50,000 ($25,000 each), each would be on the hook for $3,750 (15% of $25,000).
Class E beneficiaries
Finally, Class E beneficiaries (including charitable organizations, religious institutions, educational institutions, and government entities) are fully exempt from the inheritance tax.
Example: If you pass away and left an inheritance for the American Cancer Society valued at $30,000, this organization wouldn’t need to pay anything on the same.
Which assets are subject to the NJ inheritance tax?
The New Jersey inheritance tax applies to most property transferred from a decedent to a taxable beneficiary including NJ real estate, bank accounts, stocks, bonds, business interests, and tangible personal property (e.g., jewelry or vehicles). Property located outside the state (including out-of-state real estate), however, is generally exempt.
Life insurance proceeds are an important exception as well, with proceeds exempt if the beneficiary of a life insurance policy is a named individual such as a child or spouse; if life insurance is payable to the estate, though, funds could become part of the taxable estate and thus potentially trigger tax liability.
How and when the NJ inheritance tax is paid
The inheritance tax is typically due within eight months of the date of death, with payment made to the New Jersey Division of Taxation and interest accrued on unpaid balances after this deadline. The estate’s executor or administrator typically files the necessary returns and ensures the tax is paid before distributing assets to beneficiaries, knowing the state requires tax waivers before transferring some specific property types (e.g., real estate or securities) to confirm inheritance tax obligations are satisfied and allow for the transfer of ownership; institutions such as banks or brokerages may not release funds in the absence of this waiver.
Strategies to minimize or avoid the inheritance tax
While it’s not always possible to steer clear of New Jersey’s inheritance tax altogether, a bit of strategic planning can significantly reduce its impact. Some methods in this respect include…
Assigning assets to Class A beneficiaries whenever possible
One of the most straightforward strategies is to structure inheritances so assets go primarily to fully exempt Class A beneficiaries, possibly transferring ownership during life, using joint accounts, or naming said beneficiaries directly on retirement accounts and insurance policies.
Creating a gifting strategy
Gifting assets during life is another option, though timing is key here since New Jersey’s “lookback” rule applies to gifts made within three years of death—meaning those appearing to have been made “in contemplation of death” are still subject to inheritance tax. Make lifetime gifts well in advance and for reasons unrelated to estate planning to help minimize this risk.
Leveraging trusts
You can use trusts strategically here. While irrevocable life insurance trusts (ILITs) can help ensure insurance proceeds aren’t included in a taxable estate, for example, other types of trusts can help control how and when assets are transferred to taxable beneficiaries.
Making charitable gifts
Another method is to make charitable gifts given that transfers to Class E beneficiaries (e.g., charitable organizations) are exempt, reducing overall tax exposure while supporting meaningful causes.
Common NJ inheritance tax misconceptions
The tax only applies to the wealthy
One frequent misconception is that New Jersey’s inheritance tax applies only to the wealthy. In reality, it’s based entirely on the relationship between the deceased and the beneficiary—not on the total size of the estate. A modest inheritance left to a niece could incur tax, therefore, whereas a multimillion-dollar inheritance to a spouse would not.
NJ repealed its inheritance tax
Some mistakenly believe the inheritance tax was eliminated back when New Jersey repealed its estate tax in 2018. In fact, the two represent completely separate systems; while the estate tax was levied on the total value of an estate before assets were distributed, the inheritance tax is levied on recipients. Many residents, however, assume they no longer need to worry about state-level death taxes only to eventually discover the inheritance tax indeed still applies.
How the NJ inheritance tax interacts with other taxes
While New Jersey’s inheritance tax is a state-level phenomenon, it can interact with federal tax rules in complex ways. Estates large enough to trigger the federal estate tax (i.e., those exceeding the federal exemption amount, over $15,000,000 per individual as of 2026), for example, must navigate both systems.
Beneficiaries should also know inherited assets may have income tax implications later on; while such assets aren’t considered taxable income, any income earned from them (e.g., dividends, rental income, or capital gains on appreciated property) may be subject to federal and state income taxes.
What inheritance tax looks like in other states
New Jersey is one of only five states that still impose an inheritance tax, with Kentucky, Maryland, Nebraska, and Pennsylvania doing so as well. While the general concept is the same across the board, details vary as follows.
Kentucky
Kentucky also uses a relationship-based system similar to New Jersey’s, exempting close family members while taxing distant relatives and unrelated heirs at rates between 4% and 16%.
Maryland
Maryland is unique in that it imposes both an estate tax and an inheritance tax, though close relatives such as spouses, children, and parents are typically exempt from the latter.
Nebraska
Nebraska applies inheritance taxes at the county level rather than statewide, making it somewhat unique; rates depend on one’s relationship to the decedent and the county in which the deceased lived.
Pennsylvania
Pennsylvania’s inheritance tax applies to most property transfers from deceased residents and even to some intrastate property owned by nonresidents. Just like in New Jersey, rates vary depending on the precise relationship: 0% for spouses, 4.5% for lineal heirs, 12% for siblings, and 15% for other heirs.
NJ inheritance tax: the takeaway
New Jersey residents and anyone else with property in the state should understand the inheritance tax as an essential part of estate planning, knowing it can catch families off guard since it targets beneficiaries (rather than estates) and applies to specific relationships. Working with an experienced estate planning attorney or tax professional is recommended to help ensure assets are structured efficiently, loved ones are protected, and unnecessary taxes are avoided.
Have questions about the NJ inheritance tax or estate planning in general? Schedule a free consultation with one of our CFP® professionals to get them answered.
People also ask…
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Yes, non-resident beneficiaries are subject to New Jersey inheritance tax as it applies based on the location of the property rather than where beneficiaries live.
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Inheritance tax not paid within eight months will accrue interest at a rate of 10% per year.
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Yes, you would still be liable for the NJ inheritance tax since the property itself is located in New Jersey.
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Tax accountants familiar with NJ tax laws are generally your best bet when it comes to help completing and filing NJ inheritance tax forms. You may also want to loop in a New Jersey tax planning attorney, depending on the complexity of the inheritance.
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Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
