Is A Medicaid Malpractice or Other Lawsuit Award Subject to N.J. Inheritance Tax

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Estate Administration & Probate Attorney

With the passage of a controversial law in 2015, New Jersey finally began the process of eliminating its estate death tax.  Currently, if your net estate is worth over $2 million dollars, an estate tax applies.  But soon, there will be no estate tax, and it will not be a worry for anybody dying in New Jersey after January 1st 2018 (unless repealed or modified by the legislature).  What was not eliminated was the inheritance tax. The inheritance tax does not apply to transfers of property from a decedent to a spouse, civil union partner, domestic partner, child (includes legally adopted child), grandchild, great-grandchild, parents, grandparents, mutually acknowledged child, stepchild, or to a qualified charity.  But, if the property goes to anybody else, a tax is assessed based on the fair value of the amount given and the relationship of the beneficiary (i.e. brother, sister, former roommate, etc.) to the decedent.  So if a will provides that all or a portion of an estate goes to the decedent’s brother, this amount is included in the estate and tax must be paid?

To better understand the inheritance tax we must define what an estate entails under the inheritance and estate tax laws.  The New Jersey inheritance tax laws, N.J.S.A. §54:33-1, define an estate broadly as “the interest of the testator, intestate, grantor, bargainor or vendor, passing or transferred to a individual or specific legatee, devisee, heir, next of kin, grantee, donee or vendee, not exempt from the provisions of the law, whether such property be situated inside or outside of this state.”  Seems like a mouthful, but generally speaking, unless property is specifically exempt, any property that is in the estate is potentially subject to the inheritance tax.  The specific exemptions in the inheritance tax statutes deal directly with transfers of property made to life insurance, pension funds, and funds for a municipal corporation.

What about funds received from personal injury settlements after a person’s death?  They aren’t specifically exempted, so they must be included.  The inheritance tax laws make clear that any proceeds received by the estate from a wrongful death suit are included as part of the estate, requiring the estate’s representative to pay potential inheritance taxes on the amount that could accrue if that money was distributed, depending upon the relationship of the beneficiary to the decedent.

To discuss your NJ Estate Administration & Probate matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at  Please ask us about our video conferencing consultations if you are unable to come to our office.

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