East 80 Route 4, Suite 170, Paramus, New Jersey 07652

Federal and State Tax Exemption

On behalf of David Whitlock at Whitlock Canter LLC

Federal Gift and Estate Tax Exemptions

The federal estate tax exemption is the amount you can pass free of estate tax to your heirs. In addition, there is an unlimited “marital deduction” so that an unlimited amount can be left to a spouse without any estate tax. This is where Whitlock Canter LLC of Paramus, New Jersey can help. The following is a schedule of the federal estate tax exemption based upon the year of death:

2009 $3.5 million
2010 Federal estate tax repealed unlimited exemption with limited step-up in basis (extended election due 12/31/14) or $5 million with unlimited step-up in basis
2011 $5 million with portability of spouse’s unused exemption
2012 $5.12 million with portability of spouse’s unused exemption
2013 $5.25 million with portability of spouse’s unused exemption
2014 $5.34 million with portability of spouse’s unused exemption
2015 $5.43 million with portability of spouse’s unused exemption
2016 $5.45 million with portability of spouse’s unused exemption
2017 $5.49 million with portability of spouse’s unused exemption

The federal estate tax laws are coordinated with the federal gift tax laws. An unlimited amount can be given to a spouse during life or at death. The first $14,000 given to each person in each calendar year (referred to as an “annual exclusion”) does not reduce a person’s lifetime gift tax exemption. In addition, for married couples gifts can be “split” and treated as being made one-half (1/2) by each spouse ; thus increasing the “annual exclusion” to $28,000 per year per donee.

If the annual exclusion amounts are exceeded, a person begins to erode his or her lifetime gift tax exemption. If the lifetime gift tax exemption is exceeded a federal gift tax of 40% is applicable on the excess over the lifetime gift tax exemption. Any portion of the gift tax exemption used during a person’s lifetime reduces the estate tax exemption remaining at death. For example, if a single person made a gift of $414,000 to his son in 2017 and then died in 2017, the first $14,000 would be treated as an annual gift tax exclusion, and the remaining $400,000 would reduce the remaining gift tax exemption from $5.49 million to $54,090,000. When he died in 2017, $54,090,000 of estate tax exemption would remain.

There is portability of federal estate tax exemption between spouses. This means that upon death a spouse can pass his or her unused exemption to his surviving spouse. This is accomplished by filing a federal estate tax return reporting the amount of unused exemption remaining.

State Estate Tax Exemption

Prior to 2001 all 50 states had the same estate tax exemption. In 2001, the federal law phased out the credit for state estate tax exemptions and instead allowed a deduction for state estate taxes paid. Several of the States reacted to this change in the law and now the amount of estate tax applicable depends upon the state a person resides in at the time of their death.

In New Jersey, the estate exemption is $675,000 for 2016, $2 million for 2017 and effective 1/01/18 the New Jersey Estate Tax is repealed. The tax rate is not a fixed percentage. The rate varies depending upon the size of the estate. Like the federal estate tax law, the New Jersey estate tax law allows an unlimited marital deduction for assets left to a spouse.

New Jersey allows a “New Jersey Only QTIP election” for marital trusts if a federal estate tax return is not filed or a federal estate tax return is filed and there is also a valid federal marital deduction election made that needed to be made to reduce the federal estate tax.

The New York estate tax exemption is $4,187,500 for deaths between 4/01/16 – 3/31/17, $5,250,000 for deaths between 4/01/17 – 12/31/18 and equal to the Federal Estate Tax exemption for deaths after 12/31/18.

Florida and Delaware are among the 35 states that no longer have any state estate tax, making them a popular destination for retirement.

New Jersey Inheritance Tax Laws

New Jersey is one of only 10 states that impose an inheritance tax based upon the relationship of the person who dies (the Decedent) to the persons who inherit (the heirs or beneficiaries).

The following information summarizes the New Jersey Inheritance Tax Rates based upon the relationship of the heir to the decedent:

  • Spouses, children, step-children, parents, grandchildren, other lineal descendants and charities are exempt.
  • Brothers, sisters, wife or widow of a son, or husband or widower of a daughter — First $25,000 is exempt; 11 percent $25,000 to $1.1 million; 13 percent $1.1 million to $1.4 million; 14 percent $1.4 million to $7 million.
  • All others — First $499 is exempt; 15 percent up to $700,000; 16 percent over $700,000.