How does inheritance tax work for siblings?

Q. If two siblings inherit their sister’s estate, is each entitled to a separate $25,000 estate tax exemption? Or is the estate entitled to a single exemption of $25,000?

– Sister

A. New Jersey estate tax is based on the relationship between the beneficiary and the deceased, the type of property transferred, and the value of the property transferred.

Class A beneficiaries, which include grandparents, parents and their descendants, spouses, civil union partners, domestic partners and stepchildren, do not pay inheritance tax, said Catherine Romania, estate planning lawyer at Witman Stadtmauer in Florham Park.

Class C beneficiaries, which include siblings, sons-in-law and daughters-in-law, incur tax at the rate of 11 to 16 percent, she said.

“The first bequest of $25,000 to each Class C beneficiary is exempt,” Romania said. “Therefore, if a deceased had three siblings and each left $25,000, no estate tax would be imposed because they each received a $25,000 exemption.”

All other beneficiaries – other than charities – are Class D beneficiaries. These are taxed on transfers at the rate of 15-16% with no exemption unless the bequest to the beneficiary is less than $500.

Not all property is subject to inheritance tax.

Life insurance – if paid to a named beneficiary, not through the estate – and state pension benefits are types of property that are exempt from inheritance tax, regardless of regardless of the amount the beneficiary receives or the category of the beneficiary, Romania said.

“So, for example, a sibling – Class C beneficiary – could receive a life insurance payment of $100,000 on the death of the deceased and will pay no estate tax,” she said. . “That same $100,000 bequest paid out of other estate assets instead of life insurance would qualify for an $25,000 exemption and the balance would be taxed at 11%, resulting in an $8,250 tax. $.”

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Karin Price Mueller writes the Bamboos column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. To find NJMoneyHelp on Facebook. Register for NJMoneyHelp.comit is weekly e-newsletter.

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