Posted January 12, 2022
I had a call the other day from a frantic seller of real estate in New Jersey. This person took ownership of property being sold as a right of survivorship after the other co-owner passed away. The title company not only requested proof of death of the deceased co-owner but also required a waiver regarding inheritance tax. The seller was quite concerned as they had no idea that there could be an inheritance tax issue with regard to the portion of the property that was owned by the deceased co-owner.
Except in the case of spouses, civil union partners, and domestic partners, when a New Jersey resident dies owning jointly held assets, whether it is real estate, stocks, or bank accounts, the value of the jointly held asset will be taxed as if it belonged to the decedent. Depending on the relationship between the decedent and the surviving co-owner, the asset will be subject to New Jersey Inheritance Tax at a rate between 11% and 16%. New Jersey provides for classes of beneficiaries, including Class A, Class C, and Class D beneficiaries. Class A beneficiaries (which include spouses, civil union partners, registered domestic partners, parents, grandparents, and children) do not pay any inheritance tax. Class C beneficiaries (which include siblings of the decedent and spouses/civil union partners of a child of the decedent) receive $25,000 free from inheritance tax and then increasing rates between 11% and 16% thereafter. Inheritances received by all other non-charity beneficiaries are included in Class D and taxed between 15% and 16%.
While listing another person as a joint owner on an asset may simplify the probate aspect of an estate, it can result in a significant tax burden depending on the circumstances and beneficiary type.
This could be a significant concern for couples who live together but have not formalized their relationship. While many people consider themselves as common-law spouses, New Jersey does not recognize “common law” marriages. Under New Jersey law, if you are not legally married, you are considered a Class D Beneficiary if you own property jointly with the right of survivorship and subject to inheritance tax between 15% and 16%. As in the case of the frantic seller above, this can be quite shocking, distressing and an expensive unforeseen tax for the surviving co-owner.
Estate planning is important for everyone, but it is absolutely essential for couples who are not legally married and need to be considered when purchasing property and estate planning.
Please contact Robert Swartz if you have any questions about this post or for other estate planning issues.
Our offices are strategically located throughout New Jersey, Pennsylvania and New York.