03 Jan If I leave this house to my sister, will she owe inheritance tax?

Q. I live in New Jersey but I’m thinking of buying a lake home in New York, which I would leave to my sister, who lives in New York. Would my sister have to pay New Jersey inheritance taxes?
— Sister

A. The lake home sounds like an exciting adventure.

We have good news.

Your sister will not pay New Jersey inheritance tax on New York state property which she receives at your death, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

Although there are two types of New Jersey inheritance tax, resident and non-resident, based upon where the decedent lived at the time of death and not where the beneficiary lives, Romania said.

“If the decedent is a New Jersey resident, then a tax is assessed upon all transfers at death or intended to take effect in possession or enjoyment at or after death unless the person receiving the asset or the type of asset is specifically exempt,” she said. “If the decedent is a non-resident, then only the real property or tangible personal property located in New Jersey is considered.”

Real property located outside of New Jersey is exempt from the New Jersey inheritance tax for both resident and non-resident decedents, Romania said. Life insurance paid directly to a beneficiary and certain state retirement funds are also specifically exempt from the tax, she said.

Property passing to Class A beneficiaries, namely a spouse, domestic partner, civil union partner, parent, child, grandchild or step-child is also exempt, she said.

“If a bequest to a sibling was not specifically exempt, for example, if it was a bequest of property located in New Jersey, it would be taxed at the rate of 11 to 16% to the extent it exceeded $25,000,” Romania said.

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This story was originally published in January 2025.

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