New Jersey abolishes estate tax with two-year phaseout
On behalf of David Whitlock at Whitlock Canter LLC
After long negotiations, state legislators passed a bill to eliminate the state estate tax for deaths after 2017.
New Jersey Governor Chris Christie on October 14, 2016, with the stroke of his pen put the state estate tax into a death spiral. According to new legislation, the current law will apply for the rest of this year, meaning that when a New Jerseyan passes away in the last weeks of 2016, that portion of his or her estate exceeding $675,000 in value is still subject to the
state estate tax at a rate that depends on the size of the estate, except for the part that passes to a surviving spouse or charity.
For a New Jersey death in 2017, the exempt portion of the estate increases to the first $2 million and for any deaths after 2017, no estate taxes will be assessed by the state of New Jersey.
Many states no longer have any estate taxes. To put New Jersey in context, the current exemption of $675,000 is the lowest in the country, meaning that the state taxes certain smaller estates that no other state would under their estate tax rules. (Federal estate taxes, on the other hand, do not kick in until an estate reaches $5,450,000 in 2016 or $5,490,000 in 2017. Federal estate and gift taxes are very complex and any taxpayer with assets reaching these high levels should engage a lawyer for careful tax and estate planning.)
Reaction to the news was mixed. Supporters of the repeal felt the estate tax has driven people and commerce out of the state, in part because family businesses and farms sometimes had to be liquidated to pay the estate tax bill, rather than being passed to the next generation in the family.
The president of the New Jersey Business & Industry Association is cited on the governor’s website as believing that the $675,000 exemption level is too low because it can easily be reached by a combination of a home and 401k.
On the other hand, The Wall Street Journal reports that people opposed to the repeal worry about how the state’s treasury will be adequately funded without it. One resident interviewed by the Journal would rather have had estate tax revenue preserved and used to enhance educational opportunities than have that revenue cut completely. Instead of a complete repeal, she would have preferred raising the exemption amount to preserve some estate tax liability on wealthier estates.
Inheritance tax continues
This new legislation does not eliminate New Jersey’s inheritance tax, which will still tax at varying rates inheritances worth $500 or more left to anyone other than a spouse, lineal descendant, parent or charities. New Jersey is one of only a handful of states with this kind of tax.
Seek legal advice
This new legislation means that anyone who has an existing will and estate plan in New Jersey should talk to legal counsel about whether important modifications should be made to their plan in light of the upcoming changes to the estate tax. Previous techniques applied to minimize state estate taxes may be detrimental to the person’s goals after the new law goes into effect.
Any New Jersey resident of any level of wealth without an estate plan should also seek the guidance of an attorney to put into place tax and estate planning techniques to meet the client’s goals.
From their offices in Paramus, New Jersey, the attorneys of Whitlock Canter LLC represent clients in estate planning matters throughout the state and in New York City.