Lindabury, McCormick, Estabrook & Cooper, P.C. Firm News & Events
When people think about what happens to their property after death, they often picture a family gathered around a conference table in a lawyer’s office for the “reading” of the Last Will and Testament. The reality is quite different. Understanding how assets pass to beneficiaries, and the tax consequences of each method, can save your family time, money, and stress, and help ensure your wishes are carried out as intended.
Assets That Pass Through Probate
Probate is the court-supervised process of settling an estate, handled in New Jersey by the Surrogate’s Court of the county where the decedent lived. It covers assets held in your name alone, such as individual bank or brokerage accounts, a car, a home titled only to you, and personal belongings. These pass under your Will or, if you have none, under New Jersey’s intestacy laws. Probate is also public, so your Will becomes part of the public record.
Assets That Pass Outside Probate
Other assets pass by beneficiary designation or account title. These are known as non-probate assets, and for many families they include their most valuable property. Common examples include:
- Life insurance and retirement accounts with named beneficiaries
- Jointly owned property with right of survivorship
- Payable-on-death (POD) or transfer-on-death (TOD) accounts
- Assets held in a funded living trust
For these assets, the beneficiary designation or title controls, even if your Will says otherwise. For example, if your Will leaves everything to your children but your IRA still names a former spouse, the former spouse may still receive the IRA. Outdated beneficiary designations are among the most common reasons estate plans fail.
Skipping Probate Does Not Mean Skipping Taxes
Whether an asset passes through probate and whether it counts toward your taxable estate are two separate questions. For Federal Estate Tax purposes, nearly everything you own or control at death is included. With a 2026 federal exemption of $15 million per person, most New Jersey families will owe no federal estate tax, though larger estates need careful planning.
New Jersey’s Inheritance Tax
In addition to the Federal Estate Tax, families also need to be aware of the New Jersey Inheritance Tax. This tax depends on who receives the property rather than the size of the estate. Beneficiaries are divided into specific “classes”:
- Class A (spouses, partners, children, grandchildren, parents, grandparents): no tax
- Class C (siblings, half-siblings, children-in-law): 11% to 16% above a $25,000 exemption
- Class D (nieces, nephews, friends, unmarried partners and others): 15% to 16% from the first dollar
- Class E (qualified charitable organizations): exempt
Probate status doesn’t change exposure to inheritance tax; property passing by Will, joint ownership, or trust can also be taxed. However, certain assets, such as life insurance payable to a named beneficiary, are exempt. For example, a decedent’s nephew inheriting $100,000 from a bank account would owe tax; the same amount paid to the nephew form a life insurance policy would not.
Putting It All Together
Every asset raises three separate questions:
- Probate or Non-probate? This decides how the asset passes: under your Will, or directly by title or beneficiary designation.
- In your gross estate? This decides federal estate tax exposure. Nearly everything is counted, but tax applies only above the $15 million exemption (2026).
- Who receives it? This decides New Jersey inheritance tax, which turns on the beneficiary’s relationship to you.
An asset can skip probate, still be in your gross estate, and still trigger inheritance tax, so it’s important to review each one.
Steps You Can Take Now
- Check your beneficiary forms after divorce, remarriage, births, or deaths.
- Look at the whole picture. Your Will controls only part of what you own.
- Consider who receives what. The recipient can change the tax owed.
- Make sure cash is available. Taxes and expenses can fall on the probate estate even when other assets pass directly.
Avoiding probate can make things easier for your family, but it is not a tax strategy by itself. For a comprehensive review of your estate plan, please contact the estate planning attorneys at Lindabury.