If you are working through the estate planning process, you have to take various factors into consideration. Aside from dividing assets, taking your loved ones’ feelings into consideration and addressing other potential concerns, such as guardianship, you may need to think about taxes.
Some estates must pay estate taxes and some beneficiaries also have to pay taxes on inheritance they receive. It is important to take inheritance taxes into consideration with respect to the distribution of your assets.
When do beneficiaries have to pay inheritance tax?
According to the New Jersey Division of Taxation, beneficiaries must pay inheritance tax in some instances. For example, if someone passes down property from their estate to a non-relative, friend, nephew, niece, uncle or aunt, these beneficiaries must pay inheritance taxes.
However, other family members are not subject to inheritance tax, such as one’s spouse, parents, or children. One’s brother-in-law or sister-in-law is subject to inheritance tax, but charitable organizations are exempt.
When is inheritance tax due?
If a beneficiary has to pay inheritance taxes, they must file an Inheritance Tax Resident Return. Moreover, taxes are due no more than eight months after the date of death. If a beneficiary fails to pay the taxes they owe in this time period, an annual interest charge of 10% applies to outstanding taxes.
It is crucial to understand how estate taxes work and plan accordingly. Moreover, if you plan to pass down property to beneficiaries who will owe taxes, discuss this issue with them. By understanding the tax obligations that come with inheritance, you can decrease the likelihood of penalties and challenges arising later on.