Opportunities After the Demise of New Jersey Estate Tax

By: Glenn Schwier, CPA, JD

On January 1, 2018, the New Jersey estate tax is scheduled to disappear, ending the state tax which was based on the 2001 Federal Estate Tax rules.  In addition, President Trump has made it clear that one of his tax reform goals is to eliminate the federal estate tax.  While it is uncertain if a repeal of the federal estate tax will ever become law, the trend for both states and federal government has been to either increase the exclusion or completely eliminate estate tax.  The estate tax has been characterized as a double tax on accumulated assets which were previously subject to income tax.

Will the repeal of the New Jersey estate tax make wealthy residents reconsider moving to warm weather, and an income tax free state such as Florida?  The answer will only be counted in future income tax receipts.

Although New Jersey estate tax in 2018 is repealed, no changes were made to the New Jersey inheritance tax. The State’s second death tax still survives with no end in sight.

Why does the inheritance tax survive unchallenged by lawmakers yet the estate tax is repealed?  The reason may be found in who is subject to the different taxes.  While both New Jersey estate and inheritance tax do not apply to assets passing directly to the spouse of the decedent, children are not treated the same.  Inheritance tax exempts Class A beneficiaries which include decedent’s children from tax.  New Jersey estate tax does not exempt children.

Unlike estate tax which taxes the total value of decedent’s estate, inheritance tax is based on the relationship to the decedent.  Although amounts left to spouses, descendants, parents, grandparents and charities are exempt from inheritance tax, amounts left to other individuals may be subject to inheritance tax.  Transfers over $25,000 to brothers and sisters, $500 or more to nieces, nephews and friends are subject to inheritance tax.  Inheritance tax rates range from 11% to 16%. An unmarried, wealthy decedent with no children will pay substantial inheritance tax.

Dissimilar from estate tax, inheritance tax is based on New Jersey law which includes many unique quirks built into the rules.  Did you know inheritance tax may exempt monies received by the estate for wrongful death or payments from the New Jersey Public Employee’s Retirement System? There are still plenty of opportunities to assist clients in minimizing New Jersey Inheritance Tax.

For more information please contact us, or, join us on July 25, 2017 for a review of the changing estate tax laws along with a comprehensive look at New Jersey Inheritance Tax.

Visit http://nisivoccia.com/services/tax-trust-estate-planning/ to see our full list of tax, trust and estate planning services, and www.nisivoccia.com/events to register for the seminar.