04 Oct Are trusts exempt from the inheritance tax?

Q. I am the responsible person in my mom’s revocable trust. She died in December 2020. There are three named trustees and all are Class A beneficiaries. We are confused about what tax documents we need to file. Are trusts exempt from the inheritance tax?
— Executor

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

We’re also glad you’re asking for help because closing out a person’s estate can be confusing.

Property in a revocable trust is included for tax purposes in a decedent’s estate, while property in an irrevocable trust is generally not included, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

Because the property in the revocable trust is included, the type of property and the beneficiaries of the entire estate — both in the trust and outside the trust — must be considered in order to determine whether an inheritance tax return, and which kind, must be filed, she said.

Although an inheritance tax return may need to be filed, waivers are not necessary and are not issued for property held in the revocable trust, Romania said.

A non-resident decedent is only taxed on real and tangible property located in New Jersey, she said.

“An inheritance tax may not be incurred if the beneficiaries of the trust which holds that New Jersey property are all Class A beneficiaries such as the children of the decedent,” she said. “The relationship of the trustees is irrelevant.”

An L-9, for a resident decedent, and an L-9 NR, for a non-resident decedent, are filed in order to get a waiver for real estate held in the decedent’s direct name, but this is not necessary in the case where title is held in the name of a trust, she said.

“If an inheritance tax return is required in a situation where there is a trust, the IT-R (resident) or IT-NR (for non-resident) must be filed notwithstanding waivers are not necessary,” she said. “An example would be where a specific bequest is made in the will to a non-Class A beneficiary such that the entire estate is now not going entirely to Class A beneficiaries notwithstanding that the entire trust may be going to Class A beneficiaries.”

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This story was originally published on Oct. 4, 2021.

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