15 Jan Do I owe taxes on Canadian inheritance?

Q. My sister recently passed away in Canada. I live in New Jersey. I understand the estate tax is no longer in affect. How does the inheritance tax affect me?
— Beneficiary

A. We’re sorry to hear about your sister.

It sounds like – unless your sister owned property in New Jersey – your inheritance will be free of state inheritance taxes.

That’s because New Jersey imposes an inheritance tax on the estate of a nonresident for the transfer of real property and tangible personal property located in New Jersey belonging to the decedent or transferred within three years of death in contemplation of death, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

Plus, she said, the transfer of intangible personal property – such as bank accounts, stocks, bonds and annuities – belonging to a nonresident decedent is not subject to New Jersey inheritance tax.

It does not matter where the beneficiary lives, she said.

“In sum, if your sister had no real or tangible personal property located in New Jersey, there will be no New Jersey inheritance tax owed to New Jersey,” Romania said. “If she had such property located in New Jersey, the tax will be calculated based upon the relationship of the beneficiary to the decedent regardless of where the beneficiary lives.”

If your sister did own property in New Jersey, waivers (Form 0-1) must be obtained from the New Jersey Division of Taxation in order to release the lien for any New Jersey inheritance tax on the decedent’s affected New Jersey property, Romania said.

“If you are inheriting the property, as a sister you are considered a Class C beneficiary and generally subject to tax at a rate of 11 to 16 percent on inheritances of greater than $25,000, although for tax calculation purposes a ratio of the New Jersey property compared to the entire estate can be utilized,” she said.

Then, a Form IT-NR would need to be filed (and any tax paid) within eight months of death for a decedent with beneficiaries who are other than Class A, which includes spouse, civil union or domestic partner, parents, grandparents, descendants or stepchildren of decedent or charities.

Also, there are no inheritance taxes in Canada, but the estate could be subject to estate taxes. Check with an advisor there to be sure.

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