A compromise was reached between Governor Chris Christie and the New Jersey Legislature that increases New Jersey’s gasoline tax by 23 cents in exchange for certain tax cuts. Among the cuts is an increase in the exemption from New Jersey Estate Tax to $2,000,000 for 2017 and elimination of the New Jersey Estate Tax in 2018.
Under current law, a New Jersey Estate Tax return must be filed if a resident Decedent’s gross estate plus adjusted taxable gifts exceeds $675,000, as determined in accordance with the provisions of the Internal Revenue Code in effect on December 31, 2001. The return must be filed within nine months of death, although a six-month extension of time to file the return may be obtained. The tax rates are progressive, topping out at 16% for estates larger than $10 million. Bequests to a surviving spouse, civil union partner and charities are exempt from New Jersey Estate Tax, but a return must still be filed if a Decedent’s gross estate is larger than the $675,000 threshold.
New Jersey institutes a separate Inheritance Tax that is not affected by the recent legislation, and an Inheritance Tax return must be filed within 8 months of death, plus extensions. The Inheritance Tax can consume up to 16% of an estate, depending on the relationship between Decedent and the Estate’s beneficiaries. The federal government also imposes an Estate Tax at rates up to 40% for estates in excess of $5.45 million.
New Jersey’s repeal of its Estate Tax could ease the worries of residents who have considered moving out of state in order to preserve an inheritance for their families. Given the poor fiscal outlook in New Jersey and gubernatorial election in 2017, however, it is uncertain whether the elimination of New Jersey’s Estate Tax will be permanent. In addition, changes to the Federal Estate and Gift Tax have been proposed by both major party Presidential candidates.
No one has a crystal ball to see what the future holds. Estate plans should be reviewed periodically and adjusted for changes in family dynamics, personal finances and tax laws. Given the recent amendments to the New Jersey Estate Tax, now is a good time to determine if your estate plan is up to date and flexible enough in an ever-changing world.
