Walking You Through Estate Taxation In New Jersey

Estate taxation, like most tax matters, used to be an overwhelming subject for anyone to grasp.

There are three types of taxes that New Jersey residents must understand:

The Federal estate tax. All U.S. citizens are subject to this tax. Because the exemption has been increased to $11,400.00 per person, and because a surviving spouse may be able to take advantage of the unused portion of the spouse who was first to die, a married couple, or domestic partners, can effectively avoid Federal estate taxes on $22.8 million. This benefits most individuals and couples.

The New Jersey estate tax. Most people remember when the exemption was only $675,000. The exemption was increased to $2.5 million before it was eliminated. Although we have believed the tax would be reinstated under the current governor, so far, it has not happened. If there should be an effort to reinstate the tax, it will be all over the media, and there will be time for New Jersey residents to consider whether changes to their estate plan are warranted.

The New Jersey Inheritance tax. This tax remains viable and should be understood. The inheritance tax is a tax on a person who receives New Jersey assets from a New Jersey decedent. The amount of the tax depends on the amount of the tax and the relationship of the recipient to the decedent.

  • Class A Beneficiaries Are Exempt. These include spouses and domestic or civil union partners, children, stepchildren grandchildren, great-grandchildren etc. and parents. Step-grandchildren are not exempt.
  • Class B Beneficiaries. This category has been eliminated.
  • Class C Beneficiaries. These include siblings, spouses and civil union and domestic partners of in-law children. The first $25,000 of the amount inherited is exempt. After that there is a tax of 11% on the next $1.7 million and 16% on anything over $1.7 million.
  • Class D Beneficiaries. Nieces, nephews cousins and everyone else who does not fit into Class A or Class C. The tax is 15% on the first $700,000 and 16% on anything over $700,000.
  • Class D Beneficiaries. Charitable organizations. There is no inheritance tax.

The inheritance tax is imposed on assets received under a will; assets received by intestacy; assets received by operation of law, such as joint accounts; and assets received by beneficiary designation such as IRAs, 401(k)s, 403(b)s and all other retirement plans; and annuities.

Life insurance payable to a named beneficiary is not subject to the inheritance tax. Life insurance with no designated beneficiary or to the estate of the decedent is subject to the inheritance tax.

Assets transferred by way of gift during the three-year period before the decedent's date of death are subject to the inheritance tax if the transferee was a Class C or Class D beneficiary.

When you own a significant amount of property that you intend to pass onto heirs or beneficiaries, it is important to consider how heir inheritances may be subject to state or federal taxes. An experienced attorney can help you interpret and make the most out of the estate tax laws, so that you can help your loved ones preserve as much of their inheritance as possible.

Federal Gift tax. The federal gift tax is much misunderstood.

  • Over the years, it has been increased so that now, a person can give $16,000 per year to as many individuals as he or she chooses to benefit. There is no need to file a gift tax return.
  • If a gift is more than $16,000 to a person, the donor must file a gift tax return.
  • A husband or wife can join in and double the amount of the gift to $32,000. In that case, a gift tax return must be filed.
  • If there are gifts that exceed the annual exclusion, the excess of the annual exclusion is deducted from the Federal estate tax exemption. In most cases, this is meaningless because of the high amount of the deduction.

New Jersey Gift Tax. New Jersey does not have a gift tax. However, if a New Jersey decedent makes gifts with the three-year period immediately before his or her date of death, there will be an inheritance tax on the gifts, but only for Class C and Class D beneficiaries. The inheritance ax return asks whether any gifts were made during the three-year period prior to death. That question is answered under penalties of perjury.

Because tax laws are always subject to change, we will also help you ensure that you prepare an estate plan that takes these possible changes into consideration as best as possible.

If you would like to learn more about how creating estate and inheritance taxes may affect your estate, schedule a consultation with us, contact us online or call 973-850-4121. We have offices in Riverdale and a satellite office in Kinnelon. Both offices are handicap-accessible and have adequate off-street parking. We are available during regular business hours in Riverdale and by appointment in Kinnelon.

Both offices are convenient to NJ Route 23 and Route I-287.

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