By Michael Salad, Esq. and Sean Dougherty
New Jersey Inheritance Tax and Real Estate Held in Revocable Trusts
Practitioners often use revocable living trusts to avoid probate and ease probate administration. However, New Jersey residents who place real estate in a revocable trust may face an unexpected tax consequence when the property is later sold. The New Jersey Division of Taxation (“Division”) opined that certain costs of selling trust-owned real estate after death, including real estate broker commissions, may not be deductible on a New Jersey Transfer Inheritance Tax Return.
Who Owns and Sells the Property Matters
The issue turns on who owns and sells the property after death. The Division explained that N.J. Admin. Code section 18:26-7.12 allows deductions for realty commissions if real property is sold by an executor or administrator of an estate or if the decedent’s will directs such a sale.
If a trust holds and sells the real estate, however, “the trustee, not the executor, effectuates the transaction.” During its 2025 readoption of the Transfer Inheritance Tax and Estate Tax regulations, the Division addressed this distinction and concluded that expenses incurred by a trust do not qualify for the same inheritance tax deduction. See 57 N.J.R. 2873(a), 2874 (Dec. 15, 2025).
An Unusual Tax Result
This interpretation creates an unusual result. Property held in a revocable trust may be subject to New Jersey inheritance tax even though it is not part of the decedent’s probate estate. See N.J. Admin. Code § 18:26-5.8.
In other words, New Jersey may include the trust property in calculating inheritance tax while treating the trustee’s costs of selling that property differently from the costs of a comparable sale by an executor. The Division indicated that the trust may instead claim its sale expenses on a New Jersey Fiduciary Income Tax Return (Form NJ-1041).
When the Difference May Matter
For many families, this distinction will have little practical effect. Transfers to Class A beneficiaries, including:
- spouses;
- parents;
- children;
- stepchildren; and
- grandchildren
are generally exempt from New Jersey Transfer Inheritance Tax.
However, if real estate passes to beneficiaries who are subject to inheritance tax, such as siblings, nieces, nephews, or unrelated beneficiaries, the difference can matter.
If a trustee cannot deduct a substantial real estate commission or other sale expense on an inheritance tax return, the result may be a higher inheritance tax liability.
What This Means for Revocable Trusts
This does not mean New Jersey residents should avoid revocable trusts. They remain useful estate-planning tools for probate avoidance, incapacity planning, and efficient asset management.
However, the Division’s position adds another factor to consider before placing New Jersey real estate in a revocable trust, particularly if the property is likely to be sold after death and the beneficiaries will be subject to inheritance tax.
Key Takeaway
The key takeaway is simple: the manner in which New Jersey real estate is titled, and the identity of the party who sells it after death, may affect the resulting inheritance tax liability.
Questions about revocable trusts, New Jersey real estate, or inheritance tax? Our Trusts & Estates attorneys can help you understand how these rules may apply to your situation.
Michael Salad is an attorney in Cooper Levenson’s Business & Tax practice group. He concentrates his practice on estate and asset protection planning, probate and trust administration, special needs planning, business transactions, mergers and acquisitions and tax matters. Michael holds an LL.M. in Estate Planning and Elder Law. Michael is licensed to practice law in Florida, New Jersey, New York, Pennsylvania, Maryland, Connecticut, Georgia, Massachusetts, Alabama, Arizona, Virginia, Michigan, North Carolina, and the District of Columbia. Michael may be reached at (954) 889-1850 or via e-mail at msalad@cooperlevenson.com.
Sean Dougherty is a Summer Associate at Cooper Levenson. He is a J.D. Candidate at NSU Shepard Broad College of Law. Sean may be reached at sdougherty@cooperlevenson.com
The content of this post should not be construed as legal advice. You should consult a lawyer concerning your particular situation and any specific legal question you may have.