As of January 1st, the federal estate tax exemption increased from $11.2 million to $11.4 million per individual and from $22.4 million to $22.8 per married couple, with the highest federal estate tax rate remaining at 40%. The federal lifetime gift tax exemption and generation-skipping transfer ("GST") exemption also increased from $11.2 million to $11.4 million per individual. The annual federal gift tax exclusion amount did not increase and remains at $15,000 per donee for individuals and $30,000 per donee for married couples in 2019.
Since its repeal on January 1, 2018, there is no longer a New Jersey estate tax. There is, however, speculation that New Jersey may reinstate the estate tax in the future, especially in light of the recent decrease in the State's revenues. Prior to its repeal, the New Jersey estate tax exemption amount increased in 2017 from $675,000 to $2 million which is, likely, the amount at which it will be reinstated.
The New Jersey Inheritance Tax was not repealed. The Inheritance Tax is based upon the relationship to the decedent of the beneficiary receiving a distribution from the estate. While a spouse, civil union partner, children, grandchildren, step-children and parents are exempt from the Inheritance Tax, other family members and unrelated individuals are not exempt. Distributions over $25,000 to siblings and spouses of children (i.e., daughter-in-law or son-in-law), are taxed at 11% and distributions up to $700,000 to nieces, nephews, step-grandchildren, and friends are taxed at 15% and over $700,000 taxed at 16%. Distributions to charities are exempt.
The repeal of the New Jersey estate tax and the increase in the federal estate tax exemption may allow you to simplify your overall estate plan. Testamentary trusts, such as credit shelter trusts, should be re-visited to determine whether the trust still makes sense where estate tax reasons are no longer driving the decisions regarding the creation and/or terms of the trusts. Further, irrevocable lifetime trusts (insurance trusts or otherwise) should be reviewed to make sure that they still accomplish their intended purposes.
We are offering, as a courtesy to our clients, the opportunity to review your estate planning program at no charge. Please contact Kate Ingrassia, Esq., if you are interested in scheduling a free consultation.