Estate and Inheritance Taxes Applicable to New Jersey Residents
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Transcript of Estate and Inheritance Taxes Applicable to New Jersey Residents
Estate and Inheritance Taxes Applicable to New Jersey Residents
Alan L. Augulis
Augulis Law Firm
5 Mountain Blvd., Suite 5
Warren, NJ 07059
www.augulislawfirm.com
© 2013 by Augulislawfirm.com
2
Portability and Spousal Exemption
Introduction
Most people are aware of the fact that we have a federal estate
tax in the United States that is applicable in all 50 states.
However, some states have an estate tax on the state level, and
New Jersey is one of them.
An estate tax is not the only type of death tax. A handful of
states have an inheritance tax, and New Jersey also among this
group. Only Maryland and New Jersey have both an
estate tax and an inheritance tax on the state level.
Difference Between Estate Tax and Inheritance Tax
An estate tax is imposed on the entirety of the taxable
portion of an estate before it is passed on to the heirs. An
inheritance tax may be levied on each individual inheritance that
is received by the heirs to the estate depending on the
relationship of each heir to the decedent.
Some states have an
estate tax on the
state level, and New
Jersey is one of
them.
© 2013 by Augulislawfirm.com 3
Federal Estate Tax Exclusion
On the federal level the estate tax exclusion is $5.25 million
in 2013. This is derived from a base of $5 million that was
put in place for the 2011 calendar year with ongoing
adjustments for inflation.
The federal estate tax is unified with the gift tax, so this
exclusion extends to non-exempt gifts that you give
throughout your life. In 2013 you may give gifts equalling
as much as $14,000 to any number of recipients free of
the gift tax.
If you were to give more than $14,000 to anyone in 2013
your lifetime unified exclusion of $5.25 million would be
reduced by the portion that exceeded the exemption.
Rate of Federal Estate Tax
The maximum rate of the federal estate tax in 2013 is 40%. This
top rate also extends to the gift tax and the generation-skipping
© 2013 by Augulislawfirm.com
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transfer tax. The generation-skipping transfer tax is applicable to
asset transfers in excess of the lifetime $5.25 million exclusion for
the benefit of someone at least 37.5 years younger than the donor.
Portability and Spousal Exemption
The federal estate tax exclusion is portable, meaning that the
exclusion that was afforded to a deceased spouse could be
utilized by his or her surviving spouse.
And, there is an unlimited spousal exemption. A married
person can leave any amount of money to his or her spouse
free of the estate tax.
New Jersey Estate Tax Exclusion
In the state of New Jersey the estate tax exclusion is considerably
lower than the federal unified exclusion of $5.25 million.
The exclusion in the Garden State is just $675,000, and it is
important to understand the fact that the taxable value of your
estate includes financial assets and personal property that is
The estate tax
exclusion in the
state of New Jersey
is considerably
lower than the
federal unified
exclusion.
© 2013 by Augulislawfirm.com 5
located both in and outside of the state if you are a New Jersey
resident.
It also includes proceeds from life insurance policies on the
decedent's life that were actually owned by the decedent.
New Jersey Estate Tax Rate
New Jersey has a graduated estate tax rate, so the larger the
estate is the higher the tax rate is going to be. The maximum rate
at the current time is 16%.
New Jersey Inheritance Tax
Class A beneficiaries are exempt from the inheritance tax. This
includes parents, spouses, children, grandparents, civil union
partners, and domestic partners.
Class C beneficiaries include siblings and the spouses or civil
union partners of the decedent's children. The inheritance tax is
imposed at a rate of between 11%–16% on transfers to these
beneficiaries after a $25,000 exemption.
© 2013 by Augulislawfirm.com
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Class D beneficiaries would include everyone not described
above. These individuals must pay between 15% and 16% on
inheritances of $500 or more.
Gifts
While the state of New Jersey does not technically have a gift tax,
gifts that are given within three years of death are subject to the
inheritance tax if they were made "in contemplation of death."
New Jersey Estate Tax Filing
A New Jersey Estate Tax return must be filed within nine
months of the decedent's death if his or her taxable estate
exceeds $675,000 in value. Under the New Jersey tax code
this can be done through the utilization of the Form 706
method or the Simplified Tax System Method.
Conclusion
All of the above can be quite disconcerting for New Jersey
residents who have been able to accumulate resources exceeding
$675,000 in value. However, with the proper legal representation
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© 2013 by Augulislawfirm.com 7
you can situate your assets in an optimal manner and minimize
your tax exposure.
The logical course of action would be to consult with a licensed
and experienced estate planning attorney for financial advice so
that you can position your resources with estate and inheritance
tax efficiency in mind.
Once initial steps have been taken taxpayers would do well to
seek legal counsel on an ongoing basis to be certain that the
existing plan is still ideal given the ever-changing fiscal landscape.
References
State of New Jersey Department of Taxation http://www.state.nj.us/treasury/taxation/inheritance_over.shtml http://www.state.nj.us/treasury/taxation/revesttax.shtml Forbes http://www.forbes.com/sites/deborahljacobs/2013/01/02/after-the-fiscal-cliff-deal-estate-and-gift-tax-explained/ Nolo http://www.nolo.com/legal-encyclopedia/new-jersey-inheritance-tax.html
Augulis Law Firm Estate Planning Attorney Central New Jersey 5 Mountain Blvd., Suite 5, Warren, NJ 07059 Phone: (908) 222-8803 Fax: (908) 222-8815 www.augulislawfirm.com