On October 14, 2016, Governor Chris Christie signed into law the bill repealing the New Jersey Estate Tax as of January 1, 2018. It was part of the deal which included the 23-cents-a-gallon tax hike to renew the state Transportation Fund. The New Jersey Estate Tax exemption will remain at $675,000 for 2016 but will now increase to $2 million in 2017.
Based on the new law, estates of individuals passing in 2017 with assets under $2 million are exempt from the New Jersey Estate Tax. For individuals passing in 2018 and thereafter, there is no New Jersey Estate Tax.
The Federal Estate Tax exemption has not changed and remains at $5.45 million for individuals and $10.90 million for married couples (through the use of portability).
However, the New Jersey Inheritance Tax has not been repealed.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.
What does this mean to you? The increase in the New Jersey Estate Tax exemption to $2 million in 2017 and the repeal of the state estate tax in 2018 may allow you to simplify your overall estate plan. Testamentary trusts should be revisited 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.
Even without the New Jersey Estate Tax, there are compelling reasons to review your current estate plan. If you recently had a life-changing event, i.e., got married, had a child or now have grandchildren, got divorced, lost a spouse, moved, or bought/sold a business, you should have your estate plan reviewed by an attorney to ensure that it meets your needs and wishes. Estate plans should also be assessed to determine whether distributions to your beneficiaries will be subject to New Jersey Inheritance Tax and ways to reduce such tax.
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.