10 Sep Will I owe inheritance tax on assets in a trust?

Q. My mothers assets are all in a revocable trust with her children as beneficiaries of the trust. Are we still Class A beneficiaries or is the trust the beneficiary, thereby creating a higher rate of tax?

— Concerned

We’ve got good news for you.

First, you’re correct that a trust pays the highest tax rate.

But you and your siblings are safe.

When children inherit based on the terms of a parent’s revocable trust, they are considered Class A beneficiaries for purposes of the New Jersey inheritance tax calculation, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

Children receiving an inheritance outright from a revocable trust will not pay a New Jersey inheritance tax, she said.

Upon death, a revocable trust does not get filed in the surrogate’s office, she said. The trustee or successor trustee will administer and/or distribute the trust assets, she said.

“The assets in the revocable trust will avoid the probate process and the need to have waivers obtained from the New Jersey Division of Taxation even if there is a need to pay an inheritance tax in order to release any potential tax lien,” she said.

Any assets which were not placed into the trust during lifetime and remain in the decedent’s name at death, however, will need to be probated, Romania said.

That’s why it’s important to transfer title and ownership of assets into a revocable trust if you intend to create such a trust, Romania said.

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This story was originally published on Sept. 10, 2021.

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.