New Jersey Has an Inheritance Tax — And Most People Don’t Know About It
New Jersey is one of only a handful of states that imposes an inheritance tax. Unlike the federal estate tax, which taxes the estate itself before distribution, the NJ inheritance tax is paid by the person receiving the inheritance — and the rate depends on their relationship to the person who died.
Many families discover this tax only after a loved one passes away, when the executor informs them that a portion of their inheritance is owed to the state. Understanding how it works — and who is exempt — is essential for any New Jersey estate plan.
Who Pays and Who Doesn’t
New Jersey groups beneficiaries into classes based on their relationship to the deceased. The class you fall into determines whether you pay any inheritance tax at all — and if so, how much.
Class A — Exempt (0% tax): Surviving spouse or civil union/domestic partner, children (including adopted and stepchildren), grandchildren, parents, and grandparents. The vast majority of family inheritances fall here and owe nothing.
Class C — Partially exempt: Siblings, and the spouse or civil union partner of a child of the decedent (son-in-law, daughter-in-law). The first $25,000 is exempt. Amounts above $25,000 are taxed at 11–16% depending on the total amount inherited.
Class D — No exemption: Everyone else. This includes nieces, nephews, cousins, friends, unmarried partners, and any non-Class A or C beneficiary. Class D beneficiaries pay 15% on the first $700,000 and 16% on amounts above $700,000. There is no exemption — the tax applies from dollar one.
Class E — Exempt: Charitable organizations, religious institutions, educational institutions, and government entities pay no inheritance tax.
How the Tax Rates Work
For Class C beneficiaries (siblings and children’s spouses), the rates are graduated:
The first $25,000 inherited is exempt. On amounts between $25,001 and $1,100,000, the rate is 11%. On amounts between $1,100,001 and $1,400,000, the rate is 13%. On amounts between $1,400,001 and $1,700,000, the rate is 14%. On amounts over $1,700,000, the rate is 16%.
For Class D beneficiaries (nieces, nephews, friends, unmarried partners), there is no exemption. The rate is 15% up to $700,000 and 16% above that.
Real-World Examples
Example 1: A mother leaves her entire estate to her two children. Both children are Class A beneficiaries. NJ inheritance tax owed: $0.
Example 2: A woman leaves $100,000 to her brother. Her brother is a Class C beneficiary. The first $25,000 is exempt. The remaining $75,000 is taxed at 11%. Tax owed: $8,250.
Example 3: An uncle leaves $200,000 to his nephew. The nephew is a Class D beneficiary. There is no exemption. Tax owed: $30,000 (15% of $200,000).
Example 4: A man leaves $50,000 to his longtime girlfriend. She is a Class D beneficiary. Tax owed: $7,500 — even though the amount is relatively modest.
Inheritance Tax vs. Estate Tax — What’s the Difference?
New Jersey eliminated its estate tax in 2018, but the inheritance tax remains. They are different taxes:
The estate tax (which NJ no longer has) was paid by the estate before assets were distributed. It was based on the total value of the estate.
The inheritance tax (which NJ still has) is paid by the individual beneficiary after they receive their share. It is based on the relationship between the beneficiary and the deceased, and the amount inherited.
New Jersey estates may still be subject to the federal estate tax if the total estate exceeds the federal exemption (currently $13.99 million per person in 2025, though this is scheduled to sunset). For most New Jersey families, the federal estate tax is not a concern — but the state inheritance tax absolutely is.
Planning Strategies to Reduce or Eliminate the Tax
There are legitimate estate planning strategies that can minimize or eliminate NJ inheritance tax exposure:
Life insurance: Proceeds from a life insurance policy are generally exempt from NJ inheritance tax when paid to a named beneficiary — regardless of the beneficiary’s class. This makes life insurance a powerful tool for providing tax-free inheritances to siblings, nieces, nephews, or friends.
Beneficiary designations: Retirement accounts (IRAs, 401(k)s) paid to a named beneficiary pass outside the estate and may be structured to reduce inheritance tax exposure.
Trusts: Certain irrevocable trust structures can remove assets from the inheritance tax calculation or shift the taxable event in favorable ways.
Lifetime gifts: New Jersey does not have a gift tax. Transferring assets during your lifetime to Class C or D beneficiaries can reduce or eliminate the inheritance tax that would apply at death. However, Medicaid look-back rules must be considered if long-term care planning is relevant.
Charitable planning: Leaving assets to a charitable organization (Class E) eliminates the inheritance tax on those assets entirely.
Don’t Let the Tax Be a Surprise
The NJ inheritance tax catches many families off guard — especially when assets are left to siblings, nieces, nephews, or close friends. A few hours of planning with an estate planning attorney can save your beneficiaries thousands of dollars in unnecessary taxes.
Schedule a free consultation with Jeffrey Papola, Esq. to review your estate plan’s tax exposure. Papola Law helps New Jersey families with estate planning, tax planning, and asset protection strategies — straightforward guidance, no jargon.