Recently, Americans have been flooded with information regarding impending changes to the federal tax laws. With all of the news of the proposed federal tax regulations, it is easy to overlook the changes to the estate tax coming to New Jersey next year. Beginning on January 1, 2018, the New Jersey estate tax will be completely eliminated. This means that if a person passes away on or after January 1, 2018, their estate will not be subject to the New Jersey estate tax. The current tax law states that if a person passes away prior to January 1, 2018 and their estate is valued at more than $2 million, an estate tax would be imposed.
The repeal of the New Jersey Estate tax does not affect the current state inheritance tax. The New Jersey Inheritance Tax is imposed based on the relationship between the decedent and the beneficiary. New Jersey places beneficiaries into various classes (Classes A, C, D & E). The amount of the tax is based on the class of beneficiary and the amount of the inheritance received. Click here for more information on New Jersey beneficiary classes. For example, a spouse or child would be considered a Class A beneficiary and not subject to inheritance tax. However, if an estate is left to a sibling (a Class C beneficiary), each sibling would be subject to inheritance tax depending on the value of the estate. In the case of a Class C beneficiary, each beneficiary would be taxed between 11-16% for any inheritance more than $25,000.00. Class D beneficiaries are anyone who is not a Class A, C or E beneficiary and the tax is either 15% or 16% depending on the amount of the inheritance. Class E beneficiaries are qualified charities, religious institutions, and other exempt organizations from whom no inheritance tax is owed.
The repeal of the New Jersey Estate Tax has no bearing on the federal estate tax. The tax plan that has been proposed by President Trump would mean an end to estate tax altogether. Until Congress can come to an agreement, beginning on January 1, 2018, if an estate is valued at more than $5.6 million, it will face a federal estate tax (also known as the death tax). For a married couple, when a spouse passes away, the surviving spouse has the option to elect portability of the deceased spouse’s unused exemption to pass the unused portion of the $5.6 million exemption to his or her estate. In effect, a married couple has the ability to exclude $11.2 million from the federal estate tax.
Overall, it is important to remember that New Jersey tax laws are likely to change with a new Governor taking office in January. While the removal of the New Jersey estate tax will certainly be a welcome change to the New Jersey tax code, it is more important than ever to ensure that your estate is set up in such a way that your beneficiaries will feel as little tax consequence as possible. With years of experience in the estate planning and elder law field, I am confident that my team will be able assist any client in navigating the planning that should be put into place. Please call my office at (908) 204-3477 to schedule a free consultation to discuss any estate planning issues.
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