DEATH TAX PLANNING IN NEW JERSEY

 

As of this writing, we are in a period of uncertainty regarding the future of the federal estate tax. Although the House of Representatives has repeatedly voted to end the tax, the Senate has repeatedly voted to continue the tax. Many individuals have their own ideas about what will happen, but the truth is that nobody knows. If tax planning is an issue, flexibility is the key to a successful tax reduction strategy. Even if both houses of Congress and the President agree to end the federal tax, planning to reduce New Jersey Estate and Inheritance taxes must be considered.

The Federal Estate Tax is a tax on the right to transfer property at death and is imposed on a decedent's taxable estate, i.e. the value of all interests in property the decedent owned at the time of his death. The taxable estate includes, but is not limited to, the face value of life insurance policies, retained life estates, retirement funds, real estate, cash equivalents, personal property, business interests etc. The IRS has very technical rules for determining what property is taxable. If the value of the taxable estate falls below the applicable exclusion amount, no federal estate tax is due. The exclusion amount in the period 2007-2008 is $2 million. In 2009 the amount will be $3.5 million. In the 2010 there is no tax, but in 2011 the exclusion amount is scheduled to be $1 million with a tax rate of 55%.

 

The State of New Jersey imposes an estate tax if the value of a decedent's taxable estate exceeds $675,000.00. This is not scheduled to change; there is no plan for the elimination of New Jersey estate taxes. Although your estate may pay no Federal estate tax, your estate may have a New Jersey estate liability. The need for estate tax planning is not diminished, in fact, if reduction of estate taxes is a concern, planning is even more important. Assuming the taxable estate value is $700,000.00 the estate will pay $18,000.00 to the State of New Jersey. If the estate is valued at $1,600,000.00, the estate will pay the State of New Jersey about $70,800.00. A $3.6m estate will pay $238,800.00

 

New Jersey also imposes an Inheritance Tax on transfers to extended family and unrelated persons. The tax rate ranges from 11% to 16% depending on the amount of transfer and the relationship between the decedent and the recipient.

Federal and state law permits techniques designed to reduce or eliminate estate and inheritance taxes. The tools available include Testamentary Trusts created in your Last Will and Testament, Properly Drafted Business Agreements, Inter Vivos Life Insurance Trusts and Charitable Trusts, correct life insurance and retirement account beneficiary designations, gifts during life and other legal techniques designed to reduce or eliminate the tax bite.

 

Don't make the mistake of ignoring death taxes. We still have substantial federal and New Jersey taxes. Proper planning may help you pass more of your property on to your heirs.