Recent Changes to Estate Taxes in New Jersey

estate tax Sea Girt, NJ

In October 2016, Governor Christie signed a bill targeting transportation funding that also repealed the New Jersey Estate Tax.  The repeal of the New Jersey Estate Tax has been effective since January 1, 2018. Considering how recent this repeal occurred, many residents of New Jersey may not understand what just happened. 

New Jersey Estate Tax

The New Jersey Estate Tax repeal occurred at two different times: 

  1. On January 1, 2017, the New Jersey Estate Tax exemption increased to $2 million, meaning the amount of property that can be inherited before tax liability is incurred.  In effect, individuals dying on or after January 1, 2017, can bequeath $2 million to their heirs without being taxed. 
  2. On January 1, 2018, the New Jersey Estate Tax will no longer affect people dying afterward.

Yes, you read that correctly – since January 1, 2018, New Jersey has no applicable estate tax. The estates of deceased New Jersey residents owe nothing to the state of New Jersey, though some taxes might be owed to the federal government.  As a result, many residents of New Jersey believe their estate planning is much simpler. It is difficult to ignore the effect of this repeal because, before the law’s repeal, New Jersey had the lowest exemption from taxation of all 50 states and Washington D.C. 

Understanding the Scope of this Repeal

After January 1, 2018, New Jersey joins the other states that do not impose an estate tax on its residents.  As part of the law, there is a tax break for retired individuals.  The gross income tax exclusion on pension or retirement income will be increased over four years in effect in the year 2020. Next year, couples can claim an exclusion of $100,000, individuals can claim a $75,000 exemption, and married taxpayers who file separately can claim an exemption of $50,000.   

In response to New Jersey’s recent repeal of its estate tax, residents of New Jersey should review their estate planning documents.  For example, previously to the estate tax’s repeal, many estate planning documents created clauses to fund trusts equal to the decedent’s state or remaining federal estate tax exemption.  Now, these clauses should be reviewed to evaluate whether such directives serve a legitimate purpose or not.

Determining the Most Effective Course of Action

For some estates, a disclaimer trust provision is significant and should remain.  In other situations, a decision will have to be made regarding whether the assets should continue to be directed into a disclaimer trust or if there is an even better option available.  

In addition, for New Jersey residents with much larger estates, this review of estate planning documents is important for federal tax reasons.  For example, with the repeal of the estate tax, now credit shelter trusts can be fully funded when the first spouse dies because no New Jersey estate tax will be levied against the existing funds. Following the repeal of the estate tax, relatively simple procedures such as these only requiring a review of the current documents can be implemented to make the entire process easier for New Jersey residents. Stop avoiding the inevitable; make sure those documents are up to date. 

Call (732) 449-0449 to schedule a consultation with Anthony J. Cafaro, P.C. in our Sea Girt office.

NOTE: This blog is for informational purposes only and does not constitute legal advice

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