NJ Div of Taxation Proposed Regulations

December 17, 2007

NEW JERSEY REGISTER
VOLUME 39, NUMBER 24
MONDAY, DECEMBER 17, 2007
RULE PROPOSAL
TREASURY-TAXATION
DIVISION OF TAXATION
TRANSFER INHERITANCE AND ESTATE TAX

Proposed Amendments: N.J.A.C. 18:26-1.1 , 2.5, 2.6, 2.7, 2.16, 3A.2, 3A.3, 3A.8, 3A.10, 5.4, 5.11, 6.1, 6.2, 6.3, 6.4, 6.16, 7.4, 7.15, 8.12, 8.14, 9.13, 10.10, 11.1, 11.4, 11.15, 11.30

Authorized By: Maureen Adams, Acting Director, Division of Taxation.

Authority: N.J.S.A. 54:50-1 and 54:38-1 .

Calendar Reference: See Summary below for explanation of exception to calendar requirement.

Proposal Number: PRN 2007-373.

Submit written comments by February 15, 2008 to:

John M. Metzger
Administrative Practice Officer
Chief, Regulatory Services Branch
Division of Taxation
P.O. Box 269
50 Barrack Street
Trenton, NJ 08695-0269

Summary

As the Division has provided a 60-day comment period for this notice of proposal, this notice is excepted from the rulemaking calendar requirement pursuant to N.J.A.C. 11:30-3.3(a)5.

P.L. 2006, c. 103, the Civil Union Act (Act), which took effect on February 19, 2007, established civil unions for couples of the same sex. The legislation was passed in response to the New Jersey Supreme Court's decision in Lewis v. Harris, 188 N.J. 415 (2006) , which unanimously held that committed same-sex couples must be afforded on equal terms the same rights and benefits enjoyed by married opposite-sex couples. The subsequent Act, as stated in section 4, gives partners in civil union couples all of the same benefits, protections and responsibilities under the law, whether they derive from statute, administrative or court rule, public policy, common law or any other source of civil law, as are granted to spouses in a marriage. Section 5n of the Act provides that legal benefits, protections and responsibilities of spouses shall apply in like manner to civil union couples to laws relating to taxes imposed by the State or a municipality including but not limited to homestead rebate tax allowances, tax deductions based on marital status or exemptions from realty transfer tax based on marital status.

Section 92 of the Act provides that Whenever in any law, rule, regulation, judicial or administrative proceeding or otherwise, reference is made to 'marriage,' 'husband,' 'wife,' 'spouse,' 'family,' 'immediate family,' 'dependent,' 'next of kin,' 'widow,' 'widower,' 'widowed' or another word which in a specific context denotes a marital or spousal relationship, the same shall include a civil union pursuant to the provisions of this act. Accordingly, the amendments are being proposed to bring the transfer inheritance and estate tax rules into compliance with the above Supreme Court decision and statutory law.

N.J.A.C. 18:26-1.1 adds definitions for civil union couple and civil union partner. The rule also adds civil union couple and domestic partner to the classes of individuals included in Class A transferees (it deletes paragraph 5 under Class A transferees as being redundant). Domestic partners became eligible for Class A transferee status under P.L. 2003, c. 246, section 36 (N.J.S.A. 54:34-2 , as amended). The amendment also makes clear that a Class A transferee includes a non-biological child of a decedent where the child was the offspring of a biological parent partner conceived by the artificial insemination of that parent during the term of a civil union or domestic partnership with the decedent. In the Matter of the Parentage of the Child of Kimberly Robinson, 383 N.J. Super. 165 (Ch. Div. 2005) . Finally, the amendment includes civil union partners and surviving civil union partners of a child of the decedent as Class C transferrees.

The amendments to N.J.A.C. 18:26-2.5 delete subsections (a), (c), (d) and (e) because they are outdated and recodifies subsections (b) and (f) as (a) and (b), respectively. Recodified subsection (b) is further amended to provide for total exemptions to a domestic partner whose decedent dies on or after July 10, 2004, and to a civil union partner whose decedent dies on or after February 19, 2007.

Amendments to N.J.A.C. 18:26-2.6(b) delete the phrase or a civil union or reciprocal beneficiary under (b)2iii below because reference to such relationships was clarified by the adoption of the Civil Union Act, P.L. 2006 c. 103, as further noted below and as set forth in the rule text. Grammatical changes are also made in subparagraph (b)2iii. Further amendments to the subsection also clarify that the term civil union means a civil union as defined in the Civil Union Act, P.L. 2006, c. 103, and that the subsection continues to apply to domestic partners created in the Domestic Partnership Act, P.L. 2003, c. 246. Additionally, subsection (c) is amended, to make clear that a marriage, civil union (or its equivalent), or domestic partnership (or its equivalent) validly entered into in another jurisdiction would be recognized in New Jersey for transfer inheritance tax purposes. Other language is deleted as redundant. Subsection (d) is amended by deleting the sentence New Jersey does not recognize same-sex marriages. This sentence is inaccurate because 1) under Lewis v. Harris, the Supreme Court did not find that New Jersey law barred recognition of same sex marriages, 2) the Civil Union Act does not bar recognition of same sex marriages and 3) the Legislature explicitly removed from the Act's original draft, language that would have declared that two persons of the same sex would be excluded from the marriage laws of this State or any other State. Assembly Bill No. 3787, section 3b as amended. In place of the deleted language is the sentence New Jersey treats out-of-State same sex marriages as civil unions which is in accordance with the Attorney General Opinion, p.2, February 16, 2007. Subsection (d) is also amended to make clear that in compliance with the Act, opposite or same sex couples aged 62 years of age and older may still register as domestic partners so that the surviving partner may be eligible for exemption from the transfer inheritance tax. Existing same sex couples who are registered domestic partners need not enter into civil unions to continue to be eligible for the exemption. Finally, new subsection (e) states that a same sex couple who has entered into a legally sanctioned civil union-like relationship in another jurisdiction is not required to reaffirm that relationship in New Jersey to be exempt from the tax. The Opinion of the Attorney General dated February 16, 2006, sets forth what out-of-State civil unions or domestic partnerships are recognized as such for the purposes of New Jersey law.

N.J.A.C. 18:26-2.7 subsection (a) is deleted because it is outdated.

At N.J.A.C. 18:26-2.16(b) , example (2) is amended to include the terms civil union partner or domestic partner, because the latter statuses are to be treated the same for the purposes of New Jersey's Transfer Inheritance Tax law.

N.J.A.C. 18:26-3A.2 is amended to emphasize that the Simplified Tax System is not intended for use in all estates and may not be used in situations where the tax liability produced is not similar to the tax liability determined pursuant to paragraph (a)1. In such situations, the Form 706 method must be used. The purpose of the Simplified Tax System is to enable a taxpayer to calculate the amount of tax notwithstanding the lack of paucity of information for compliance due to such factors as the absence of valuations made for Federal estate tax purposes and the absence of Federal gift tax information, provided that its use produces a tax liability similar to the Form 706 method.

N.J.A.C. 18:26-3A.3 is amended to provide that estate tax treatment to a surviving civil union partner be the same as to a surviving spouse, where the simplified tax method is used and also qualified terminable interest property (QTIP) is received. Also, the Division proposed an amendment to N.J.A.C. 18:26-3A.3 at 39 N.J.R. 4106(a), with a correction to that section to make clear that any property includable in the Federal gross estate under the provisions of the Internal Revenue Code in effect on December 31, 2001, is included in the simplified New Jersey Estate tax calculation. Existing paragraph (a)6 is amended to comply with the Civil Union Act, P.L. 2006, c. 103, to make clear that the taxable value of the estate, which includes any property passing outright to the decedent's surviving spouse provided the surviving spouse was a U.S. citizen on the decedent's date of death, applies equally to the surviving civil union partner of a decedent who died on or after February 19, 2007. The proposed amendment also makes clear that regardless of whether this provision applies to a surviving spouse or a surviving civil union partner, the deduction does not include QTIP (Qualified Terminable Interest Property) or similar property. QTIP is property that passes from the decedent and in which the surviving spouse or civil union partner has a qualifying income interest for life.

N.J.A.C. 18:26-3A.8(d) is amended to provide for exceptions to the general rule that where a taxpayer makes an election for Federal estate tax purposes, a like election and treatment of assets and deductions must be treated in the same manner for New Jersey estate tax purposes, in conformity with P.L. 2002, c. 31. It is also amended to take into account the requirement that for State tax purposes, surviving civil union partners be treated in a similar manner to surviving spouses. Likewise, new subsection (e) is added to allow a surviving civil union partner of a decedent who died on or after February 19, 2007, a marital deduction equal to that permitted a surviving spouse under the provisions of the Internal Revenue Code in effect on December 31, 2001, for New Jersey estate tax purposes. A pro forma 2001 Form 706 should be completed as though the Internal Revenue Code treated a surviving civil union partner and a surviving spouse in the same manner. Finally, new subsection (f) is added to reiterate that a Simplified Tax System method using Form IT-Estate may also be filed (along with New Jersey Inheritance Tax return Form IT-R completed in accordance with the provisions of the Inheritance Tax statute in effect on December 31, 2001), but only in those situations where a Federal estate tax return has not and will not be filed nor is a tax return required to be filed with the Internal Revenue Service.

N.J.A.C. 18:26-3A.10 is amended to include in its provisions, reference to a civil union partner in accordance with the Civil Union Act.

N.J.A.C. 18:26-5.4(c) is amended to include civil union couple after husband and wife. Subsection (d) is amended to include /her husband/civil union partner after wife.

N.J.A.C. 18:26-5.11(f) is amended to include civil union partner after spouse.

The amendments to N.J.A.C. 18:26-6.1 delete subsections (a), (b), (d) (e) and (f) because they are outdated and recodifies subsections (c) and (g) as (a) and (b), respectively. Recodified subsection (b) is further amended to provide for total exemptions to a domestic partner whose decedent dies on or after July 10, 2004, and to a civil union partner whose decedent dies on or after February 19, 2007. Existing subsection (h) is deleted because its provisions have been placed in new subsection (b) as noted above.

N.J.A.C. 18:26-6.2 designates the paragraph under that section as subsection (a) and adds a new subsection (b) to include a civil union partner or surviving civil union partner of a decedent's son or daughter in the total exemption from New Jersey transfer inheritance tax where property transfers are $25,000 or less, where the decedent dies on or after February 19, 2007. The amendments to N.J.A.C. 18:26-6.3 delete subsections (a) and (b) because they are outdated and they refer to statutory provisions on dower and curtesy that have been repealed. Accordingly, subsection (c) has had its codification removed because it stands on its own.

N.J.A.C. 18:26-6.4 is amended to include civil union couple after husband and wife and civil union partner after surviving spouse as civil union couples may hold property as tenants by the entirety. Also, the subsection (a) codification has been removed because the subsection stands on its own and paragraph (a)1, has been amended to be merged into the subsection and to show that the statutory reference would also include civil union couple and civil union partner.

N.J.A.C. 18:26-6.16 is amended to include a surviving civil union partner and also modifies the term domestic partner with the word surviving for clarity.

N.J.A.C. 18:26-7.4 is amended to include civil union partner after surviving spouse.

N.J.A.C. 18:26-7.15(b) is amended to include civil union partner after surviving spouse.

N.J.A.C. 18:26-8.12(a) is amended to include civil union couple after husband and wife.

N.J.A.C. 18:26-8.14(b) 1 is amended to include civil union after marriage.

N.J.A.C. 18:26-9.13(c) is amended to include civil union partner after spouse.

N.J.A.C. 18:26-10.10 is amended to make grammatical changes. It also deletes language providing for inheritance tax refunds to be paid without any application being made for them because statutory law requires that an application for a refund be made within three years of the date of the erroneous payment. N.J.S.A. 54:35-10 . Language in conformity with the statute is added to the existing rule section.

N.J.A.C. 18:26-11.1(c) is amended to provide that no tax waivers are required to be issued regarding certain transfers not only to a surviving spouse of a New Jersey resident decedent, but also to a surviving civil union partner of a resident decedent who dies on or after February 19, 2007. The subsection also provides that a corporation may release intangible assets, not just to a surviving spouse, but also to a surviving civil union partner or domestic partner upon execution of an affidavit of waiver by any of those parties. Similar inclusionary language is added in paragraphs (c)2, 3, 4 and 5.

N.J.A.C. 18:26-11.4(a) is amended to include civil union couple after husband and wife and civil union partner after spouse. N.J.A.C. 18:26-11.15(a) and (b) are amended to include civil union partner after spouse.

N.J.A.C. 18:26-11.30(c) is amended to include civil union partner after spouse.

Social Impact
The proposed amendments will have a beneficial social impact because they implement the civil rights legislation in P.L. 2006, c. 103, adopted pursuant to the State Supreme Court decision in Lewis v. Harris, to provide equal rights to same sex couples under New Jersey State law. The amendments will also impact society by furthering the public policy of New Jersey of ending discrimination based on sexual orientation embodied in New Jersey's Law Against Discrimination, N.J.S.A. 10:5-3 et seq.

Economic Impact
The proposed amendments are not expected to have an economic impact independent from the impact resulting from the underlying statutory change and court opinion broadly applied.

Federal Standards Statement
A Federal standards analysis is not required because the authority for the proposed amendments is derived from the State Transfer Inheritance Tax law, N.J.S.A. 54:33-1 et seq., and the State Estate Tax law, N.J.S.A. 54:38-1 et seq. Furthermore, the additional language pertaining to civil unions is mandated by the State Supreme Court decision in Lewis v. Harris and the State Civil Union Act. The proposed amendments are, therefore, under federalism, free of any Federal standards or requirements, including the Federal Defense of Marriage Act (DOMA).

Jobs Impact
The proposed amendments will have no impact on jobs in New Jersey other than, perhaps, to provide more employment for attorneys and accountants as there may be more work in completing returns. The Division does not anticipate an increase or decrease in jobs as a result of the proposed amendments.

Agriculture Industry Impact
The proposed amendments will not have an impact on the agriculture industry.

Regulatory Flexibility Analysis
The Division of Taxation, consistent with its mission, reviews its rule proposals with a view to minimizing the impact of its rules on small businesses to the extent possible. The mission of the Division of Taxation is to administer the State's tax laws uniformly, equitably, and efficiently to maximize State revenues to support public services; and to ensure that voluntary compliance within the taxing statutes is achieved without being an impediment to economic growth.

The proposed amendments would apply to any individual or company that may be engaged in the administration of an estate, including those that may be considered small businesses as defined in the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq. The proposed amendments should not require any additional reporting, recordkeeping, or compliance requirements beyond those needed to substantiate that a disclaimer was appropriately made, if questioned by the Division. Professional services, including legal or accounting services, may be required in order to comply with the proposed amendments, but to the extent needed, if at all, would vary based on the circumstances of the estate. Because the Division applies the tax rules uniformly and equitably, the Division does not develop and apply special rules for small businesses that would be different from the rules applied to other parties. In this respect, the Division strives to maintain a level playing field.

Smart Growth Impact
The Division of Taxation anticipates that the proposed amendments will have no impact on smart growth in New Jersey or on the implementation of the New Jersey State Development and Redevelopment Plan.

Full text of the proposal follows (additions indicated «+thus+»; deletions indicated «-thus-»):

« NJ ADC 18:26-1.1 »

18:26-1.1 Definitions

The following words and terms, when used in this chapter, shall have the following meanings unless the context clearly indicates otherwise:

…
«+Civil union couple means the legally recognized union of two eligible individuals of the same sex established pursuant to P.L. 2006, c. 103, partners of which shall receive the same benefits and protections and be subject to the same responsibilities as spouses in a marriage.+»

«+Civil union partner means a person who has established a civil union pursuant to the provisions of P.L. 2006, c. 103.+»

Class A transferee means any of the following:

1. A father, mother, grandparent, grandchildren, husband«+,+» «- or-» wife«+, civil union partner or domestic partner+»;

2. A child or children of a decedent, including any stepchild of a decedent or child or children adopted by a decedent in conformity with the laws of this State, or of any of the United States or of a foreign country«+. A Class A transferee shall also include a non-biological child of a decedent where the child was the offspring of a biological parent partner conceived by the artificial insemination of that parent during the term of a civil union or domestic partnership with the decedent unless it is otherwise shown that the non-biological parent had not intended to be the parent of the child+»;

3. The issue of any child or legally adopted child of a decedent; «+ or+»

4. Any child to whom the decedent for not less than 10 years prior to the transfer stood in the mutually acknowledged relationship of a parent, provided the relationship began at or before the child's 15th birthday and was continuous for 10 years thereafter. This applies to persons who were taken into the household and reared as children of the decedent, but who were never legally adopted by the decedent«-; or-»«+.+»

«-5. A domestic partner as defined in section 3 of P.L. 2003, c. 246 (N.J.S.A. 26:8A-3) .-»

Class C transferee means any of the following:

1. (No change.)

2. A wife«+/civil union partner+» or widow«+/surviving civil union partner+» of a son of a decedent; or

3. A husband«+/civil union partner+» or widower«+/surviving civil union partner+» of a daughter of a decedent.

…

« NJ ADC 18:26-2.5 »

18:26-2.5 Rates for Class A transferee

«-(a) Transfers to Class A transferees where the decedent dies on or after July 1, 1978 through June 30, 1985, except as provided in (c) below, are taxed at the following rates:-»

«-(b)-» «+(a)+» (No change in text.)

«-(c) Transfers to Class A transferees, other than a spouse, where the decedent dies on or after July 1, 1985 through June 30, 1986, are taxed at the following rates:-»

«-(d) Transfers to Class A transferees, other than a spouse, where the decedent dies on or after July 1, 1986 through June 30, 1987, are taxed at the following rates:-»

«-(e) Transfers to Class A transferees, other than a spouse, where the decedent dies on or after July 1, 1987 through June 30, 1988, are taxed at the following rates:-»

TABULAR OR GRAPHIC MATERIAL SET FORTH AT THIS POINT IS NOT DISPLAYABLE

DELETED TABULAR MATERIAL NOT DISPLAYED

«-(f)-» «+(b)+» Transfers to all Class A transferees, where decedent dies on or after July 1, 1988, are totally exempt«+, except that transfers to a domestic partner are totally exempt where the decedent dies on or after July 10, 2004, and transfers to a civil union partner are totally exempt where the decedent dies on or after February 19, 2007+».

« NJ ADC 18:26-2.6 »

18:26-2.6 Mutually acknowledged child or domestic partner

(a) (No change.)

(b) In the case of a Class A transferee to whom the decedent stood in the relationship of a «+spouse or civil union partner as defined in P.L. 2006, c. 103+» or domestic partner as defined in section 3 of P.L. 2003, c. 246 (N.J.S.A. 26:8A-3) , «-or a civil union or reciprocal beneficiary under (b)2iii below,-» the claim on behalf of such a transferee must include «- the following:-»

«-1. If the relationship was entered into in New Jersey, a copy of the Certificate of Domestic Partnership with the State seal issued by the local registrar.-»

«-2. If the relationship was entered into in another jurisdiction:-»

«-i. A copy of the certificate or other document issued by the other jurisdiction bearing its seal;-»

«-ii. An affidavit providing the information contained in the Affidavit of Domestic Partnership required to be filed in New Jersey; and-»

«-iii. Such other-» «+such+» proof «-or-» «+and+» supporting official documentation«-, if any,-» as «+may be+» required by the Director «-that directly supports the claim that is being made-».

(c) If a «+marriage, civil union (or its equivalent), or a+» domestic partnership«-, civil union or reciprocal beneficiary relationship-» «+ (or its equivalent)+» was entered into in another jurisdiction, the surviving «+spouse/+»partner is exempt for inheritance tax purposes «- provided that the requirements for establishing a domestic partnership in New Jersey (other than a residence in New Jersey and the filing of an Affidavit of Domestic Partnership in New Jersey) were met and the partnership/union would be allowed under New Jersey statutes-».

(d) New Jersey «-does not recognize same-sex marriages. A-» «+treats out-of-State same sex marriages as civil unions (Attorney General Opinion, p.2, February 16, 2007). The surviving partner of a+» same«---»sex «+or opposite sex+» couple «-must register-» «+registered+» as domestic partners «+prior to February 19, 2007, who continue to be so registered, remain eligible for the transfer inheritance tax exemption. An opposite or same sex couple aged 62 years and older, who wish to register as a domestic partnership, may do so+» in New Jersey in order for the surviving partner to be exempt from the inheritance tax«+, provided, however, that a domestic partnership-like relationship entered into outside of New Jersey, which is valid under the laws of the jurisdiction under which the partnership was created, need not be reaffirmed in New Jersey for the surviving partner to be exempt from the inheritance tax+».

«+(e) Same sex couples may also enter into civil unions in New Jersey in order for the surviving partner to be exempt from the inheritance tax, provided, however, that a couple who has entered into a legally sanctioned civil union-like relationship in another jurisdiction is not required to reaffirm that relationship in New Jersey to be exempt from the tax.+»

« NJ ADC 18:26-2.7 »

18:26-2.7 Rates of Class C transferee

«-(a) In the case of a transfer to a Class C transferee, where the decedent dies prior to July 1, 1988, the rates are as follows:-»

«-(b)-»«+(a)+» (No change in text.)

« NJ ADC 18:26-2.16 »

18:26-2.16 Ratio tax on transfer of nonresident's property

(a) (No change.)

(b) The following are illustrations of the provisions of (a) above:

…
Example (2):

Same facts as Example (1) except that Mr. A died testate and bequeathed $10,000 held in a bank account to his nephew and the rest of his estate to his wife«+/civil union partner/domestic partner+».

First, a tax is computed as if Mr. A had been a New Jersey domiciliary, i.e., as to B, $ 10,000 x 15% = $1,500; as to A's wife«+/civil union partner/domestic partner+», $90,000, all of which is exempt.

Second the total of tax, i.e., $1,500 is multiplied by 1/10, the ratio of the property subject to tax to the entire estate, i.e., 1/10 x $1,500 = $150.00, the amount of tax due.

« NJ ADC 18:26-3A.2 »

18:26-3A.2 Amount of the tax and certain valuations

(a) The tax is, at the discretion of the person or corporation liable for its payment, either:

1. (No change.)

2. An amount determined pursuant to the Simplified Tax System set forth in N.J.A.C. 18:26-3A.3 . The Simplified Tax System may not be used in those cases where a Federal estate tax return is filed or required to be filed. «+The Simplified Tax System is not intended for use in all estates. It may not be used in situations where the tax liability produced is not similar to the tax liability determined pursuant to (a)1 above.+»

(b) The following principles are applicable in making valuations and calculating the tax where family limited partnerships are involved.

1. A family limited partnership is a limited partnership in which more than 50 percent of the partners are related by blood or marriage«+/civil union+» and which does not have a true business purpose. It may or may not hold an interest in another partnership or other asset which has a true business purpose. One indicia of a true business purpose is that the family limited partnership has and engages in business or commercial transactions with customers, clients, persons or entities other than the partners of the family limited partnership, their family members or other related individuals or entities.

2. - 4. (No change.)

« NJ ADC 18:26-3A.3 »

18:26-3A.3 Simplified Tax System

(a) The taxable value of the estate is determined as follows:

1.-4. (No change.)

5. In the event that the decedent was a surviving spouse«+/civil union partner of a decedent who died on or after February 19, 2007,+» and received qualified terminable interest property (QTIP) from the predeceased spouse «+or civil union partner+» for which the marital deduction was elected for Federal and/or New Jersey, the full value of the QTIP property; less

6. Any property passing outright to the decedent's surviving spouse «+or to the surviving civil union partner of a decedent who died on or after February 19, 2007,+» provided «-he or she-» «+the surviving spouse/civil union partner+» was a U.S. citizen on the decedent's date of death «-; and-»«+. This deduction does not include QTIP (Qualified Terminable Interest Property) or similar property. QTIP is property that passes from the decedent and in which the surviving spouse or civil union partner has a qualifying income interest for life. The surviving spouse or civil union partner has a qualifying income interest for life if he or she is entitled to all or a specific portion of the income from the property payable annually or at more frequent intervals, or has a usufruct interest in the property (right to enjoy the property) for life, and during the surviving spouse's or civil union partner's lifetime no person has a power to appoint any part of the property to any person other than the surviving spouse or civil union partner. Additionally, the surviving spouse or civil union partner must be a citizen of the United States on the decedent's date of death. If QTIP or the surviving spouse's or civil union partner's citizenship is a significant factor, consideration should be given to the use of the Form 706 method of filing; and+»

7. (No change.)

(b) (No change.)

« NJ ADC 18:26-3A.8 »

18:26-3A.8 Filing of tax return and other information

(a) - (c) (No change.)

(d) In those cases where a taxpayer makes an election for Federal estate tax purposes, a like election must be made for New Jersey estate tax purposes. Assets and deductions must be treated in the same manner for both Federal and New Jersey estate tax purposes«-.-» «+with the following exceptions:+»

«+1. In those situations where the decedent is survived by a spouse and a Federal estate tax return is required to be filed, a Qualified Terminable Interest Property (QTIP) election, which does not reduce the Federal estate tax liability is not given effect for New Jersey estate tax purposes. In those situations where a Federal estate tax return is not required to be filed, a QTIP election is not permitted for New Jersey estate tax purposes as the property effectively passes as part of the Federal taxable estate.+»

«+2. In those situations where a decedent is survived by a civil union partner on or after February 19, 2007, and a Federal estate tax return is required to be filed, a New Jersey QTIP election may be made provided that the election would have reduced the Federal estate tax liability had the decedent been survived by a spouse and the election been made for Federal purposes. In those situations where a Federal estate tax return is not required to be filed, a QTIP election is not permitted for New Jersey estate tax purposes as the election would not have been permitted had the decedent been survived by a spouse.+»

«+(e) If the decedent was a partner in a civil union and died on or after February 19, 2007, survived by his or her partner, a marital deduction equal to that permitted a surviving spouse under the provisions of the Internal Revenue Code in effect on December 31, 2001, is permitted to the surviving civil union partner for New Jersey estate tax purposes. In these cases, a pro forma 2001 Form 706 should be completed as though the Internal Revenue Code treated a surviving civil union partner and a surviving spouse in the same manner.+»

«+(f) A Simplified Tax System method may also be used, but only in those situations where a Federal estate tax return has not and will not be filed nor is a tax return required to be filed with the Internal Revenue Service. The Simplified Tax System requires that a Form IT- Estate be prepared and filed along with a New Jersey Inheritance Tax return Form IT-R completed in accordance with the provisions of the Inheritance Tax statute in effect on December 31, 2001.+»

« NJ ADC 18:26-3A.10 »

18:26-3A.10 Payment; due date; interest; extension of time

(a) (No change.)

(b) All or any part of the estate tax due this State, if not paid within nine months from the date of death, shall bear interest at the rate of 10 percent per annum from the expiration of the said nine months until the date of actual payment, unless an extension of time to file the Federal estate tax return is granted, in which case the Director may reduce the interest rate to six percent per annum until the expiration of the extension. If the decedent was a member of the United States armed forces, the estate tax will not bear interest until the expiration of nine months after receipt of official notification of the decedent's death by the decedent's husband, wife, father, «+civil union partner,+» mother, or next of kin. The Director may, for cause shown, extend the time for payment with interest at the rate of 10 percent per annum, for such period as the circumstances, in his or her discretion, may require.

(c) -(e) (No change.)

« NJ ADC 18:26-5.4 »

18:26-5.4 Classification of property as real or personal [FN1]

(a) - (b) (No change.)

(c) Concerning ground rents, or leasehold interests, ground rents or any leasehold interest in land for 99 years or more is deemed to be an interest in real property for the purpose of valuation only under the New Jersey inheritance tax laws; however, as to succession under the laws of descent and distribution of this State, such an interest is personal property. Such an interest, when held by a husband and wife«+/civil union couple+», is held as a tenancy in common, unless the conveyance expressly states they hold as joint tenants. There can be no tenancy by the entirety in such an interest. Unaccrued ground rent on property located outside this State and owned by a resident decedent is deemed to be foreign real property and, therefore, not subject to tax; however, ground rent accrued prior to the date of death on property located outside the State of New Jersey owned by a resident decedent is subject to tax as it is deemed to be personal property.

(d) Partnership real estate. Any real property held by a partnership of which a decedent is a partner even if held by the deceased partner and his wife«+/ her husband/civil union partner+» as tenants by the entirety, is deemed to be a partnership asset and therefore is considered personal property.

[FN1](No change.)

« NJ ADC 18:26-5.11 »

18:26-5.11 Jointly held property

(a) - (e) (No change.)

(f) The right of a spouse«+/civil union partner+» or the right of a domestic partner as defined in section 3 of P.L. 2003, c. 246 (N.J.S.A. 26:8A-3) , as a surviving joint tenant with his or her deceased spouse«+/ civil union partner+» or domestic partner, to the immediate ownership or possession and enjoyment of a membership certificate or stock in a cooperative housing corporation, the ownership of which entitles such member or stockholder to occupy real estate for dwelling purposes as the principal residence of the decedent and spouse«+/civil union partner+» or domestic partner is exempt from the Transfer Inheritance Tax.

« NJ ADC 18:26-6.1 »

18:26-6.1 Class A transfers

«-(a) In instances where the decedent dies prior to July 1, 1978, the transfer of property having an aggregate clear market value of $5,000 or less which is transferred to a father, mother, grandparent, husband, wife, child or children, adopted child or children, mutually acknowledged child, stepchild or issue of any child or adopted child of a decedent is exempt from the New Jersey transfer inheritance tax.-»

«-(b) In instances where the decedent dies on or after July 1, 1978 through June 30, 1985, except as provided in (c) below, the transfer of property having an aggregate clear market value of $15,000 or less which is transferred to a father, mother, grandparent, husband, wife, child or children, adopted child or children, mutually acknowledged child, stepchild or issue of any child or adopted child of a decedent is exempt from the New Jersey transfer inheritance tax.-»

«-(c)-» «+(a)+» (No change in text.)

«-(d) In instances where the decedent dies on or after July 1, 1985 through June 30, 1986, the transfer of property having a clear market value of $50,000 or less which is transferred to a father, mother, grandparent, child or children, adopted child or children, mutually acknowledged child, stepchild or issue of any child or adopted child of a decedent is exempt from the New Jersey transfer inheritance tax.-»

«-(e) In instances where the decedent dies on or after July 1, 1986 through June 30, 1987, the transfer of property having an aggregate clear market value of $150,000 or less which is transferred to a father, mother, grandparent, child or children, adopted child or children, mutually acknowledged child, stepchild or issue of any child or adopted child of a decedent is exempt from the New Jersey transfer inheritance tax.-»

«-(f) In instances where the decedent dies on or after July 1, 1987 through June 30, 1988, the transfer of property having an aggregate clear market value of $250,000 or less which is transferred to a father, mother, grandparent, child or children, adopted child or children, mutually acknowledged child, stepchild or issue of any child or adopted child of a decedent is exempt from the New Jersey transfer inheritance tax.-»

«-(g)-»«+(b)+» Transfers to all Class A transferees, where decedent dies on or after July 1, 1988, are totally exempt«+, except that transfers to a domestic partner are totally exempt where the decedent dies on or after July 10, 2004, and transfers to a civil union partner are totally exempt where the decedent dies on or after February 19, 2007+».

«-(h) Transfers to a domestic partner as defined in section 3 of P.L. 2003, c. 246 (N.J.S.A. 26:8A-3) are totally exempt where the decedent dies on or after July 10, 2004.-»

« NJ ADC 18:26-6.2 »

18:26-6.2 Class C transfers

«+(a)+» In instances where the decedent dies on or after July 1, 1988, the transfer of property having an aggregate clear market value of $25,000 or less which is transferred to a brother or sister of decedent, a wife or widow of a son of a decedent or a husband or widower of a daughter of a decedent is exempt from the New Jersey transfer inheritance tax.

«+(b) In instances where the decedent dies on or after February 19, 2007, the transfer of property having an aggregate clear market value of $25,000 or less which is transferred to a civil union partner or surviving civil union partner of a son or a daughter of a decedent is exempt from the New Jersey transfer inheritance tax.+»

« NJ ADC 18:26-6.3 »

18:26-6.3 Dower or curtesy

«-(a) In the case of an estate of a resident decedent dying, prior to May 28, 1980, intestate and seized of real property who is survived by a spouse and a child or children, the interest of the spouse in the real property by way of dower or curtesy provided under N.J.S.A. 3A:35-1 and 2 is not subject to the inheritance tax of this State; provided, however, that such spouse takes only his or her dower curtesy interest in the real property or has such interest set off or admeasured by way of election under the will or otherwise.-»

«-(b) The exemption for dower or curtesy is in addition to the exemption provided for in N.J.A.C. 18:26-6.1 .-»

«-(c)-» In the case of a resident decedent dying on or after May 28, 1980, there is no exemption for the interest of the spouse in real property by way of dower or curtesy unless both the real estate was purchased and the marriage took place prior to May 28, 1980.

« NJ ADC 18:26-6.4 »

18:26-6.4 Tenancy by the entirety

«-(a)-» The transfer of real property or personal property in this State held by a husband and wife«+/civil union couple+» as tenants by the entirety to the surviving spouse«+/civil union partner+» is not taxable for New Jersey Inheritance Tax purposes.«-1.-» See N.J.S.A. 46:3-17.2 , P.L. 1987«-,-» c. 357«+, except that where words such as husband and wife and spouse/wife/husband are used in the statute, the words civil union couple and civil union partner shall be given the same treatment as the former terms, respectively+».

« NJ ADC 18:26-6.16 »

18:26-6.16 Other pensions

An exemption is provided for payments from any pension, annuity, retirement allowance or return of contributions, which is a direct result of the decedent's employment under a qualified plan as defined by section 401(a), (b) and (c) or 2039(c) of the Internal Revenue Code , which is payable to a surviving spouse«+/surviving civil union partner as defined in P.L. 2006, c. 103+» or a «+surviving+» domestic partner as defined in section 3 of P.L. 2003, c. 246 (N.J.S.A. 26:8A-3) .

« NJ ADC 18:26-7.4 »

18:26-7.4 Mortgages

The balance of a mortgage owing on the date of death is allowed as a deduction from the value of any real property securing such mortgage, except that in the case of realty held by a decedent and a surviving spouse«+/civil union partner+» as tenants by the entirety, the amount of any mortgage owing on such realty at the decedent's death is not allowable as a deduction since such property is exempt from the New Jersey Inheritance Tax.

« NJ ADC 18:26-7.15 »

18:26-7.15 State, county and local taxes

(a) (No change.)

(b) No deduction for unpaid State, county and municipal taxes is allowed where the realty owned by the decedent was held by such decedent and a surviving spouse«+/civil union partner+» as tenants by the entirety, unless it can be shown that during his lifetime, the decedent appropriated all of the income from such property without having paid any of the state, county and municipal taxes and other charges assessed against the realty.

« NJ ADC 18:26-8.12 »

18:26-8.12 Life estate in realty held by the entirety

(a) When real property is devised or transferred to a husband and wife«+/ civil union couple+» as tenants by the entirety each having a vested life estate in common with the other for their joint lives with a vested estate in fee in the entire remainder subject to defeasance, as to the one first dying, the value of such property for New Jersey Inheritance Tax purposes, is ascertained as follows:

1. - 2. (No change.)

« NJ ADC 18:26-8.14 »

18:26-8.14 Partnerships

(a) (No change.)

(b) In cases where the decedent was a member of a partnership that constitutes a family limited partnership, special rules apply, including rules related to valuation of the partnership interest.

1. A family limited partnership is a limited partnership in which more than 50 percent of the partners are related by blood or marriage«+/civil union+» and which does not have a true business purpose. It may or may not hold an interest in another partnership or other asset which has a true business purpose. One indicia of a true business purpose is that the family limited partnership has and engages in business or commercial transactions with customers, clients, persons or entities other than the partners of the family limited partnership, their family members or other related individuals or entities.

2. (No change.)

« NJ ADC 18:26-9.13 »

18:26-9.13 Late payment; general provisions

(a) - (b) (No change.)

(c) In cases where a decedent dies while a member of the Armed Forces of the United States, the tax due shall begin to bear interest at the rate of «-ten per cent-» «+10 percent+» per annum on any unpaid balance due after the expiration of eight months after receipt of official notification of the death of the decedent by the spouse«+/civil union partner,+» parent or next of kin of such decedent.

(d) - (f) (No change.)

« NJ ADC 18:26-10.10 »

18:26-10.10 Overpayment of account

In any case where the amount paid on account for New Jersey «-Inheritance Taxes-»«+inheritance taxes+» exceeds the amount of such tax due after final assessment has been made, the amount so overpaid «-is-» «+shall be+» refunded by the State Treasurer in the due course of business «- without application for a refund-»«+, provided, however, that all applications for a full or partial refund of the payment of the transfer inheritance tax shall be made within three years from the date of such payment, or from the date of the final determination of a court of competent jurisdiction, which establishes the fact that the decedent had no legal or equitable interest in the property on which the tax was assessed and erroneously paid, whichever is later; and provided, however, that no refund shall be made where such final determination occurs more than 20 years after the date of death of the decedent+».

« NJ ADC 18:26-11.1 »

18:26-11.1 Consent to transfer; generally

(a) - (b) (No change.)

(c) No inheritance tax waivers are required to be issued by the Director in the case of certain transfers to the surviving spouse of a New Jersey domiciled decedent who died on or after January 1, 1985«+, or a surviving civil union partner of a New Jersey domiciled decedent who died on or after February 19, 2007, or to a registered domestic partner of a New Jersey domiciled decedent who died on or after July 10, 2004+». In order to satisfy a corporation (its transfer agent) including any banking institution, trust company organized under the laws of New Jersey, national bank operating in this State, building and loan or savings and loan association in New Jersey, or credit union chartered by the United States operating in this State that intangible assets may be released to the surviving spouse«+/civil union partner or domestic partner+», an affidavit of waiver «+(Form L-8)+» can be executed by the surviving spouse«+/civil union partner or domestic partner+» or the personal representative of the decedent's estate.

1. (No change.)

2. The decedent's surviving spouse«+/civil union partner+» can execute an affidavit «+(Form L-8)+» in all cases where under the terms of the account or instrument and applicable State law the spouse«+/civil union partner+» has the right of survivorship or is the named beneficiary. Letters testamentary or of administration are not required to be attached as part of the affidavit when executed by the surviving spouse«+/civil union partner+», except as provided in (c)3 below.

3. Where the surviving spouse«+/civil union partner+» has qualified as executor or administrator of the decedent's estate, intangible assets which pass to the spouse«+/civil union partner+» under a will or the law of intestate distribution can be released by the affidavit together with other assets described in (c)2 above, provided that the spouse's«+/civil union partner's+» letters testamentary or of administration are attached and made a part of the affidavit as provided in (c)1 above. Where the spouse«+/civil union partner+» has not qualified as an executor or administrator of the decedent's estate, only intangible assets may be released by the affidavit in accordance with (c)2 above.

4. A separate affidavit is required for each institution, organization or corporation releasing assets to a surviving spouse«+/civil union partner+».

5. The affidavit of waiver by the surviving spouse«+/civil union partner+» cannot be used for real property and tangible personal property transfers from a decedent to a surviving spouse«+/civil union partner.+»

6. (No change.)

(d) - (f) (No change.)

« NJ ADC 18:26-11.4 »

18:26-11.4 Real and personal property of resident and nonresident decedents

(a) Waivers consenting to the transfer of real property located in New Jersey are necessary for estates of resident decedents or estates of decedents whereby guardians have been appointed for the deceased prior to his death; except, that real property held by a husband and wife«+/civil+» «-and-» «+ union couple as+» tenants by the entirety must be transferred without a waiver in the estate of the spouse dying first.

(b)-(c) (No change.)

« NJ ADC 18:26-11.15 »

18:26-11.15 Certain small estates not subject to waiver

(a) If the gross estate of a resident decedent which for tax purposes does not exceed $5,000 where the applicant is the spouse«+/civil union partner+» of the decedent or $200.00 where another person is the applicant, and the spouse«+/civil union partner+» or other applicant furnishes a bank, savings institution, or a savings and loan association with an affidavit in lieu of administration which has been obtained from the Surrogate of the County wherein the decedent died a resident, such bank, institution or association may release the funds on deposit to the credit of a resident decedent without the written consent of the Director upon the spouse«+/civil union partner+» or other applicant executing Form 0-80 or 0-83.

(b) Form 0-83, used by a spouse«+/civil union partner+» or Form 0-80, used by any other applicant, is to be obtained only from a bank, savings institution or savings and loan association and executed concurrently with the release of any funds. Every bank institution or association is required to obtain such forms directly from the Transfer Inheritance Tax Section of the Individual Tax Audit Branch, PO Box 249, Trenton, New Jersey 08695-0249, and is further required to obtain the following information from each applicant before the release of any funds to be assured that the total assets of the estate are less than $5,000 or $200.00 as the case may be:

1-5. (No change.)

(c) - (e) (No change).

« NJ ADC 18:26-11.30 »

18:26-11.30 Life insurance companies

(a)- (b) (No change.)

(c) Neither the written consent of the Director nor notice to the Director is required to release any sums payable referenced in (a) above when payment is made outright to the decedent's surviving spouse«+/civil union partner+».

(d) (No change.)

39 N.J.R. 5185(a)

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