double tax on inherited money for State and beneficiary?

Submitted by Douglas Bauerband on Tue, 2016-05-03 16:17

client (with no family) had two annuities with beneficiary who is not family related in anyway. the annuities represented 90% of her estate at death.

Based on NJ taxation, the estate has to pay 15% of the total on annuities.

The beneficiary is receiving the money and then sending the attorney a check payable to the State of NJ for the taxes.

Questions:
a. when you total an estate for inheritance tax (non-family), is it the total of all monies or just the gain in the non-IRA annuities?

b. when she pays the inheritance taxes to NJ, does she also have to pay taxes on the gain in the annuities under her personal taxes?

or…

c. since she paid the inheritance tax, all taxes are paid and she has no taxes on the gain for personal taxes?

Thank you,
Douglas

Permalink Submitted by Bruce Steiner on Wed, 2016-05-04 02:09

With a few exceptions, the New Jersey inheritance tax applies to assets passing at death.

Annuities don’t get a basis step-up at death. The gain is income in respect of a decedent (IRD), and is ordinary income. To mitigate the double tax, there’s an income tax deduction for the marginal Federal estate tax. However, this deduction doesn’t apply to the state estate or inheritance taxes.