On October 14, Gov. Christie signed a new law that will remove
New Jersey from the top of the list as one of the worst states in
which to die, and that may give pause to many New Jersey residents
seeking to establish their domicile elsewhere. With the new law,
New Jersey decedents who die during 2017 will not be subject to New
Jersey estate tax unless their taxable estates are greater than
$2,000,000. Beginning with deaths occurring on January 1, 2018, the
New Jersey estate tax is repealed. Those New Jersey decedents dying
in 2016 with estates exceeding $675,000 will remain subject to New
Jersey estate tax. Further, the federal estate tax will continue to
apply to estates greater than the federal exemption amount,
currently $5,450,000 and scheduled to increase each year based on
The genesis of the new law is the need to replenish New
Jersey's Transportation Trust Fund, and its main tax, an
increase of the gas tax by $.23 per gallon, will be used to
maintain New Jersey's transportation infrastructure. The
changes to New Jersey's estate tax law are one of the
compromises being made in exchange for the increased gas tax.
Although the New Jersey estate tax is on its way out, New Jersey
continues as one of six states to impose an inheritance tax on
transfers from a decedent to a beneficiary. The New Jersey
inheritance tax is based on the relationship between the decedent
and the beneficiary receiving assets from the decedent. Qualifying
charities and Class "A" beneficiaries are exempt from the
inheritance tax. Class "A" beneficiaries include a spouse
or civil union or domestic partner, lineal ancestors, descendants,
and stepchildren. The rate of tax imposed on transfers to other
individuals depends on the "Class" assigned to that
beneficiary. The inheritance tax excludes the transfer of certain
retirement benefits and life insurance paid directly to a
beneficiary or trust, but is imposed on gifts/transfers that occur
within three years of death.
The new law will have no impact on nonresidents who own real
estate or tangible personal property in New Jersey. Nonresidents
are not subject to New Jersey estate tax but are subject to New
Jersey inheritance tax. The new law makes no change in the taxes to
which nonresidents are subject. If a nonresident plans to leave New
Jersey real estate to someone other than a qualifying charity or
other Class "A" beneficiary, the nonresident should
explore planning opportunities to convert the real estate to
intangible personal property, such as an interest in a partnership
or limited liability company, which would not be subject to New
Jersey inheritance tax.
The estate tax repeal does not eliminate other issues to
consider during the planning process. New Jersey death tax waivers
are still required to transfer certain bank accounts, brokerage
accounts, and securities of a New Jersey resident after death.
Obtaining tax waivers is becoming a major administrative issue in
New Jersey and can substantially delay access to cash and
transferring inherited assets to the rightful beneficiaries.
Because the tax waiver requirements do not apply to assets held in
a decedent's revocable trust, creating and funding a revocable
trust is a strategy that should be evaluated during the estate
If your estate plan includes a bequest tied to the New Jersey
estate tax exemption (or the amount that could pass free of federal
or state estate tax), you may wish to revisit your plan to be sure
it continues to carry out your wishes. It is important to keep in
mind, however, that while estate taxes may have played a
significant part in creating an estate plan that involves trusts,
other factors – such as second marriages, young or disabled
beneficiaries, death tax liens, or creditor concerns –
continue to justify the importance that trusts play in a solid
Butler Snow attorneys Christopher L. McLemore and John R. Wood recently contributed the following article to eprivateclient.com, a leading internet publication for those in the wealth management field.
As this time, it is difficult to determine what the specific provisions of President-Elect Donald J. Trump's tax proposals will be; however, it is important to highlight the types of planning that are not likely to be affected, and therefore could, and should, continue.
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