Why you need a waiver at all
New Jersey’s Transfer Inheritance Tax is a lien on everything the decedent owned. Until the state releases it, a New Jersey bank can generally release only half of an account, and a title company will not close on a sale of the house. The release is a tax waiver. Which form gets you there depends on who inherits.
New Jersey has had no estate tax for deaths on or after January 1, 2018. The inheritance tax is separate and still applies.
Who is Class A
Class A beneficiaries pay no inheritance tax: a spouse, civil union partner or domestic partner, children, including adopted children, grandchildren and further descendants, parents, grandparents and stepchildren. Step-grandchildren are not Class A. Charities and other Class E beneficiaries are also exempt from the tax, but they do not qualify for the short forms.
Form L-8: bank and brokerage accounts
- What it releases. New Jersey bank accounts, brokerage accounts, stock in New Jersey corporations and New Jersey investment bonds.
- Who signs it. The executor or administrator, or a Class A joint owner or payable-on-death beneficiary.
- Where it goes. Directly to the bank or brokerage holding the account. It is not mailed to the Division of Taxation.
- When it works. When the account passes to Class A beneficiaries, as joint owner, payable-on-death beneficiary or by a specific gift in the will, and no inheritance tax is due. An account that falls into the rest of the estate qualifies only if everyone who shares the estate is Class A.
- When it does not. Real estate, or assets whose distribution is decided by a trust.
Form L-9: real estate
- Class A only. It can be used only if all beneficiaries are Class A. If any asset worth $500 or more passes to anyone else, it cannot be used.
- Filed with the state. The notarized affidavit goes to the Division of Taxation, not the County Clerk, and the Division issues the waiver.
- Resident decedents. L-8 and L-9 are for New Jersey residents. A nonresident who owned New Jersey real estate is handled on Form IT-NR.
- No waiver needed. A home owned with a surviving spouse or civil union partner as tenants by the entirety needs no waiver.
When a full IT-R is required
A full return must be filed whenever any asset passes, by will, by law or by a transfer before death, to a Class C, D or E beneficiary, a mutually acknowledged child, or a trust of any kind. That is true even when no tax comes out of it, for example a $20,000 gift to a brother, which falls inside his $25,000 exemption. A beneficiary who disclaims an inheritance also means a full return. Once the IT-R is filed and the tax paid, the Division issues Form 0-1 waivers for every asset, including the ones going to Class A family.
A worked example
William, a widower living in Bergen County, leaves $100,000 to his sister, $100,000 to his niece and the rest of his estate, including his house and his bank and brokerage accounts, to his two children.
| Two children, Class A | $0.00 |
| Sister, Class C: first $25,000 exempt | $0.00 |
| Sister, Class C: next $75,000 at 11% | $8,250.00 |
| Niece, Class D: $100,000 at 15% | $15,000.00 |
| Inheritance tax due within eight months | $23,250.00 |
| Interest if paid late, at 10% a year | $193.75 a month |
The children owe nothing, but because the sister and the niece inherit, the estate files a full IT-R. An L-9 is not available for the house even though it goes to the children, and the accounts that fall into the rest of the estate do not qualify for an L-8. The house and those accounts are released with 0-1 waivers after the return is filed and the tax is paid. The figures are before debts, funeral costs and administration expenses, which reduce the taxable amounts.
The rates, for reference
- Class C, brothers, sisters and a child’s spouse or civil union partner: the first $25,000 is exempt, then 11% on the next $1,075,000, 13% on the next $300,000, 14% on the next $300,000 and 16% above $1,700,000.
- Class D, everyone else: 15% on the first $700,000 and 16% above. A Class D beneficiary who receives less than $500 owes nothing. At $500 or more, the whole amount is taxed.
Getting cash before the waiver
Without any waiver, a financial institution may release up to 50% of the date-of-death value of a bank account to a surviving joint owner, the executor or the administrator. That does not apply to stocks, bonds or real estate. See how we prepare the IT-R and request the waivers.
This guide is general information based on the law as of the date above, not advice for your situation. Tax rules change, and the right answer depends on your numbers.