Will our kids owe the inheritance tax?

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Q. I have a trust set up with my wife leaving all of the assets in it to our two grown children. Will any of it be subject to New Jersey’s inheritance tax?
— Taxed enough

A. Your kids will avoid paying any inheritance tax under this scenario.

The state’s estate tax was repealed on Jan. 1, 2018, but the inheritance tax remains.

The inheritance tax is imposed on property passing to anyone other than a spouse, parents or lineal descendants — children, grandchildren, and step-children, but not step-grandchildren, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

These descendants are called Class A beneficiaries.

Charities, which are Class E beneficiaries, are also not subject to inheritance tax.

Other beneficiaries would be subject to the tax, which can range from 11 to 16 percent.

New Jersey also has a rule regarding gifts made “in contemplation of death,” Whitenack said.

“If gifts are made that are not completed until one’s death — for example, if a house is transferred and a life estate interest is retained — or the donor fails to survive for three years after making lifetime gifts to persons or entities other than Class A or Class E beneficiaries, these amounts will be returned to the estate and possibly subject to New Jersey inheritance tax,” she said.

Because the assets in your case are going to Class A beneficiaries, an inheritance tax will not be imposed, Whitenack said.

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This post was first published in February 2018.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.