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Changes in New Jersey Tax Legislation

Bigstock-Smiling-Gay-Couple-44953600There’s a difference between an inheritance tax and an estate tax. New Jersey is one of just a few states with an inheritance tax.

Here’s one difference between an inheritance tax and an estate tax. An inheritance tax is paid by the person who inherits assets, and how much they pay depends upon their relationship to the decedent, as reported in in a post titled “Will domestic partner owe inheritance taxes?”

In the Garden State, there are different classes of beneficiaries. Each class is given different treatment for inheritance tax purposes.

First, there’s no inheritance tax imposed on transfers to Class 'A' beneficiaries. This group includes a parent, grandparent, spouse, child or step-child.

Because of the New Jersey Domestic Partnership Act that was enacted in 2003, domestic partners are also now included as Class 'A' beneficiaries who are exempt from inheritance tax (for any partners who die on or after July 10, 2004).

The Domestic Partnership Act also allows same sex couples to register as domestic partners in New Jersey.

The Act also lets opposite sex couples, who are at least 62 years of age, to register as domestic partners. What is required for this registration is meeting the established legal requirements and having a local registrar issue what is called a “Certificate of Domestic Partnership.”

This inheritance tax exemption works, even if the domestic partnership was entered in another state or DC.

Documentation of the domestic partnership is important to avoid the inheritance tax, because common law marriage is not recognized in the state.

If an unmarried couple has not registered as a domestic partnership, the surviving partner often experiences a big surprise. The inheritance he or she receives is subject to an inheritance tax at the rate of 15%.

New Jersey residents who are not married and not registered as domestic partners, should meet with an experienced estate planning attorney to discuss what their wishes are for the surviving partner and address other estate planning issues.

Reference: (August 28, 2017) “Will domestic partner owe inheritance taxes?”

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