As of January 1st, the federal estate tax exemption increased from $5.45 million to $5.49 million 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 $5.45 million to $5.49 million. The annual federal gift tax exclusion amount did not increase and remains at $14,000 per donee for individuals and $28,000 per donee for married couples in 2017.
The biggest change is with the New Jersey estate tax. As discussed in a prior article, in October of 2016, Governor Chris Christie signed into law a bill that significantly modified the New Jersey estate tax. As of January 1st, the New Jersey estate tax exemption increased from $675,000 to $2 million. Accordingly, if an individual dies in 2017 and has assets less than $2 million, his or her estate is exempt from the New Jersey estate tax (and the federal estate tax as well).
Not only did the new law signed by Governor Christie increase the New Jersey estate tax exemption to $2 million this year but it repealed the New Jersey estate tax as of January 1, 2018. For individuals passing in 2018 and thereafter, there is no New Jersey estate tax! There has been, however, some discussion that the repeal of the New Jersey estate tax will be halted before 2018 and the exemption amount frozen at $2 million.
It is also important to note that the new law did not repeal the New Jersey Inheritance tax. This tax is based upon the relationship of a beneficiary to the decedent. Spouses, children, step-children, parents and charities are exempt but siblings, nieces, nephews, step-grandchildren, and friends are not exempt. For example, a niece or friend receiving a bequest of $10,000 would be subject to a 15% New Jersey Inheritance tax.
In light of the significant changes to the New Jersey estate tax, your estate planning documents should be reviewed. The increase in the New Jersey estate tax exemption to $2 million and the (potential) repeal of the New Jersey estate tax in 2018 may allow you to simplify your overall estate plan. By-pass or credit shelter trusts under your Wills may no longer be necessary, and irrevocable lifetime trusts, i.e., life insurance trusts, should be re-examined to see if they are still required.
Please contact Kate Ingrassia, Esq., if you are interested in having your estate planning documents reviewed.