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

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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.

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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

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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.

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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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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