You have been working your whole life. You have a family, you have a partner, you have grown children, and maybe you even grandchildren. Now is the time to consider how you would like your assets to be distributed after you are gone. However, when doing so, it is very important to consider the effect of the federal estate tax, the New Jersey estate tax, and the New Jersey inheritance tax might have on your assets. What is the tax burden your loved ones will face after you are gone? If you want to minimize the burden your heirs will face, it is important to plan your estate now, and when doing so to pay heed to the relevant tax obstacles, planning around them whenever possible. The Federal Estate Tax only affects the very wealthy, applying only to estates in excess of $5,450,000. In addition to the Federal Estate tax, however, residents of New Jersey must plan for the New Jersey Inheritance and Estate Tax.
The New Jersey Estate Tax
New Jersey is unfortunately one of the minority of states that has its own estate tax. This tax is calculated by using the net value of your property at the time you pass.
The gross value of your estate includes everything you owned at the time of death, including real estate, stocks, 401(k)s, IRA’s, life insurance, bank accounts, and brokerage accounts. If the gross value of the estate exceeds $675,000, then an estate tax is owed for every dollar above this amount. The exception to this rule is that a surviving spouse is not required to pay estate tax in New Jersey. Therefore, if you pass away and leave all of your $1 million dollar estate to your children, they will be required to pay the estate tax. However, if you leave it to your spouse, he or she will not have to pay the estate tax. There are certain strategies to allow you to maximize the use of this credit as well, which can decrease or even eliminate an estate tax burden on your children when both you and your spouse have passed.
The Inheritance Tax
The second type of tax a New Jersey estate might be subject to, depending on the heirs, is an inheritance tax. This state tax is calculated based on the amount of property each heir receives, and is paid on bequests made to certain classes of beneficiaries. The tax rate depends on how close the heir is to the decedent. For example, spouses, domestic partners, parents, grandparents, children, stepchildren, and grandchildren of the deceased are Class A beneficiaries, and are exempt from the inheritance tax. Charitable donations are also exempt. Siblings, sons-in-law and daughters-in-law, and otherwise surviving partners of children are Class C beneficiaries. The first $25,000 of property left to Class C beneficiaries is not taxed, but after that, the next $1,075,000 is taxed at 11%; the next $300,000 is taxed at 13%; the next $300,000 is taxed at 14%; and amounts over $1.7 million are taxed at 16%. Class D beneficiaries include everyone else.
Get Legal Help
New Jersey levies much more aggressive taxes against the estates of its residents than many other states, and for this reason it is very important to consult an experienced estate planning attorney when it is time to plan for the future. The Law Office of Steven M. Cytryn can help you plan your estate in a way that minimizes the tax consequences and maximizes what you leave to your loved ones. Contact Mr. Cytryn today for estate planning you can trust.
