What is Unique About Annuities and Inheritance Taxes in New Jersey?

Inheritance taxes differ by state.

Inheritance taxes.

Not every state has them.

When they do, how is the tax paid?

This will depend on the state.

Fortunately, neither Kansas nor Missouri has an inheritance tax.

On the other hand, let us consider New Jersey for our Garden State subscribers.

According to a recent nj.com article titled “Who pays inheritance tax on an annuity?,” the inheritance tax is dependent upon the heir of the asset and the asset itself.

How so?

Life insurance proceeds, certain pensions, and transfers totaling less than $500 are exempt.

Other assets are subject to the inheritance tax.

What about if the asset is transferred through a beneficiary designation rather than under a will?

These are still subject to inheritance taxes.

For example, an annuity must have the date of death valuation listed on the New Jersey Inheritance Tax form.

This form must then be filed by the executor or administrator of the estate no later than eight months after the decedent died.

It must be returned with payment on taxes owed.

Who will be responsible for paying this tax?

This depends on the will.

If the will states the inheritance tax should be paid from the assets remaining after specific bequests and debts have been paid, the estate will pay if the remaining money left can cover the tax.

The will could also place the burden on the recipients to pay all estate and inheritance taxes proportionately.

This is also the default rule for the state of New Jersey should an individual die without a will.

What happens if the beneficiary refuses to pay?

The executor must pay the tax with assets from the will.

This will diminish the assets left to remaining beneficiaries.

The executor can then sue this beneficiary for the funds.

No one wants a lawsuit.

If the executor says you should pay, you should pay.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: nj.com (May 14, 2018) “Who pays inheritance tax on an annuity?”