For years, I have helped clients minimize or eliminate the New Jersey estate tax and federal estate tax as part of clients’ Wills and Trusts. In particular, the New Jersey estate tax impacted many residents of this State because until January 1, 2017 New Jersey levied an estate tax on estates exceeding $675,000.
In the past 13 months, however, New Jersey has substantially changed its estate tax laws. First, on January 1, 2017, New Jersey raised their estate tax exemption to $2 million. Then, effective January 1, 2018, New Jersey’s estate tax was repealed. This is a game changer for estate planning in New Jersey.
The federal estate tax is a tax assessed on estates valued above the federal estate tax exemption amount in effect during the year the decedent passed away. The federal estate tax exemption amount gradually increased over the past 10 years to the sum of $5,600,000 as of January 1, 2018.
However, that number was doubled to $11,200,000 under the federal tax legislation passed by Congress and signed by the President earlier this month. And, since the estate tax is deferred for married couples until the second spouse dies, a married couple with optimal estate tax Trusts in their estate planning documents can shield $22,400,000 from federal estate taxes.
These New Jersey and federal estate tax changes mean that only the most-wealthy folks will be required to pay estate taxes. This is good news for everyone who do not want the government to take a piece of their estates. It should be noted, however, that political and government budget issues will likely shape future estate tax laws.
Previously, the New Jersey estate tax was assessed on estates exceeding $675,000, a small number when you consider that the taxable estate includes real estate and all accounts including the death benefit of life insurance policies. In doing so, the New Jersey Division of Taxation collected hundreds of millions of dollars in estate tax revenue each year that will not be collected under the new laws.
Many estate planning attorneys, including this one, believe that New Jersey could bring back their estate tax in order to recoup the tax revenues that the State previously received from its estate tax. The same factors could drive the federal government to reduce the federal estate tax exemption, as well. Time will tell the future of estate tax law.
In the meantime, I recommend that everyone have their existing Wills and Trusts reviewed by an estate attorney to see if they should be updated to conform with the recent estate tax law changes. For now, simple Wills without estate tax Trusts should suffice for most client’s estate planning documents. But it is important to review prior Wills and Trusts to be sure that the old planning documents work well with these new estate tax laws.
It should be noted that New Jersey has retained its inheritance tax, which is a separate tax imposed upon New Jersey estates where the beneficiaries are not spouses, children, grandchildren or parents. The New Jersey inheritance tax applies to inheritances received by siblings, nephews, nieces, cousins, aunts, uncles, friends and step-grandchildren (but not step-children). The inheritance tax rates range from 11% to 16%.
To learn more about how your estate may be impacted by these changes, click here or 856.782.8450.