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What is the New Jersey estate tax rate?

Paterson, NJ |

What is the tax rate applied to New Jersey estates? I cannot seem to find a uniform answer. Some sites say it is graduated; others say it is a fixed 16% rate on any assets exceeding the $675,000 exemption.
I found this from the Middlesex County Surrogate’s office, but it’s Greek to me: “The estate tax is designed to absorb any portion of the credit allowance under the Federal estate tax that is not fully taken up by the aggregate amount of all death taxes paid to any state, U. S. territory or District of Columbia. This tax is the difference, if any, determined by subtracting the amount of the inheritance, legacy and succession taxes paid to this state and elsewhere from the allowable credit.”
Basically, I am trying to figure out how much will be owed on an estate worth $1 million total.

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Attorney answers 4

Best Answer
Posted

It is a graduated rate. See page 10 of the NJ Estate Tax Return (Go to NJ Taxation website, Search for Form IT-Estate). It ranges from 4.8% to 16% depending on the amount of the estate.

I certainly do not know enough about your situation to give a true and complete answer but if on your NJ estate tax return the taxable estate (after deductions, etc.) is 1,000,000 (this also assumes a single person no spouse or surviving spouse's taxable estate) the tax would be $33,200.

The language you are referring to explains that if you pay other state death taxes (such as inheritance tax) you get a credit for that amount.

This is not legal advice nor intended to create an attorney-client relationship. The information provided here is informational in nature only. This attorney may not be licensed in the jurisdiction which you have a question about so the answer could be only general in nature. Visit Steve Zelinger's website: http://www.stevenzelinger.com/

Asker

Posted

Is $33,200 the maximum credit for state inheritance, estate, succession or legacy taxes allowed on a $1 million estate under the Internal Revenue Code in effect on December 31, 2001, or is it an amount determined pursuant to the Simplified Tax System prescribed by the Director, Division of Taxation?

Bonnie Klein Rhoden

Bonnie Klein Rhoden

Posted

I agree with this attorney.

Posted

Attorney Zelinger is correct. Here is additional helpful information: http://www.state.nj.us/treasury/taxation/revesttax.shtml

Good luck to you.

This information is presented as a public service. It should not be construed to be formal legal advice nor considered to be the formation of a lawyer/client relationship. I am licensed in Connecticut and New York and my answers are based upon the law in those jurisdictions. My answer to any specific question would likely be different if I were to review a client's file and have the opportunity to interview the client. Accordingly, I strongly urge you to retain an attorney in your jurisdiction with respect to any legal matter.

Asker

Posted

Can you explain what is meant by "sponge" or "pickup" tax from the following, which is taken from the web site cited above: Prior to its July 1, 2002 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. Thank you

Joseph Michael Pankowski Jr

Joseph Michael Pankowski Jr

Posted

Sure: the federal government once gave each decedent's estate a "credit" for state death taxes paid. If a state didn't take the credit, then the estate simply got to keep the amount it didn't have to pay. Thus, states like New Jersey figured they'd pick this low-hanging fruit by imposing a tax in the amount of the credit given by the federal government. Note that the federal government no longer gives this credit and, thus, states no longer use the "sponge" or "pickup" tax. Instead, you get the mish-mash which is the New Jersey death tax calculation.

Asker

Posted

Thank you for that excellent explanation.

Bonnie Klein Rhoden

Bonnie Klein Rhoden

Posted

I agree with this attorney's information.

Posted

The Surrogate's explanation is accurate. NJ estate tax equals the credit that would be allowed for state death tax if the actual decedent property interest are calculated per federal 2001 estate tax return. It would be well worth consulting a trust and estate lawyer because various techniques can help reduce or eliminate NJ estate tax. Also inheritance tax planning may be in order.

Lawrence Friedman, Bridgewater, NJ. Certified as an Elder Law Attorney by the ABA approved National Elder Law Foundation, former Chair NJ State Bar Association Elder and Disabilities Law Section, Member Board of Consultors of NJSBA Real Property, Trusts & Estates Law Section, Vice Chair Special Needs Law Section of National Academy of Elder Law Attorneys, and Master of Laws (LL.M.) in Taxation from N.Y.U. School of Law. Visit SpecialNeedsNJ.com for articles and Q&A on elder law, special needs, wills, trusts, estates, and tax. Visit SpecialNeedsNJ.com/blog and subscribe for free timely updates to be delivered to your inbox. Information on both Avvo and SpecialNeedsNJ.com does not constitute legal advice, as it is general in nature and may not apply to your situation or be subject to important changes. No attorney client relationship exists unless set forth in written engagement terms.

Lawrence Friedman, Bridgewater, NJ. Certified as an Elder Law Attorney by the ABA approved National Elder Law Foundation, former Chair NJ State Bar Association Elder and Disabilities Law Section, Member Board of Consultors of NJSBA Real Property, Trusts & Estates Law Section, Vice Chair Special Needs Law Section of National Academy of Elder Law Attorneys, and Master of Laws (LL.M.) in Taxation from N.Y.U. School of Law. Visit SpecialNeedsNJ.com for articles and Q&A on elder law, special needs, wills, trusts, estates, and tax. Visit SpecialNeedsNJ.com/blog and subscribe for free timely updates to be delivered to your inbox. Information on both Avvo and SpecialNeedsNJ.com does not constitute legal advice, as it is general in nature and may not apply to your situation or be subject to important changes. No attorney client relationship exists unless set forth in written engagement terms.

Bonnie Klein Rhoden

Bonnie Klein Rhoden

Posted

Agreed.

Posted

While I do not disagree with my esteemed colleagues, I note that since one can transfer, by Will or beneficiary designation, one's entire estate (not the wisest thing) to a surviving spouse, using the unlimited marital deduction, on the first death of a husband and wife, there is no NJ Transfer Inheritance Tax or NJ Estate Tax to be paid.

The foregoing is not intended to be legal advice upon which you may rely as I have not been retained for this purpose.

Bonnie Klein Rhoden

Bonnie Klein Rhoden

Posted

Agreed.