03 Jan Does a Class “D” beneficiary have to pay tax on this inheritance?
Photo: pixabay.comQ. Does a Class “D” beneficiary have to pay inheritance taxes on a non-qualified variable annuity, or just income taxes on the earnings? What about future earnings?
— Beneficiary
A. New Jersey still has an inheritance tax.
It eliminated the estate tax in 2018.
The amount of tax due on an inheritance depends on the relationship of the heir to the decedent, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.
New Jersey classifies beneficiaries by “class.” There are four classes.
Class A beneficiaries are straight lines to the decedent, Kiely said. Class A beneficiaries are grandparents, parents, children and grandchildren and adopted children and grandchildren.
Class A beneficiaries pay no inheritance tax, Kiely said.
Class C beneficiaries are brothers or sisters of the decedent, he said. There is no tax on amounts less than $25,000. Then it can range 11% to 16%, depending on the amount inherited, he said.
Class D beneficiaries are every other beneficiary not otherwise classified, Kiely said. There is no tax on amounts inherited that are less than $500. Amounts inherited between $500 and $700,000 the tax is 15%. And inheritances in excess of $700,000 the tax is 16%, he said.
Kiely said in your case, the amount of inheritance tax you will have to pay depends on the size of your inheritance.
“You say you are inheriting a non-qualified variable annuity. A variable annuity is an insurance company product that is invested in stocks. Non-qualified means it’s not a retirement account or IRA,” he said. “And yes, you will have to pay income taxes on the future growth of the annuity.”
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This story was originally published in January 2024.
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