A not so funny thing happened
in my office the other day…
…NEW JERSEY ESTATE TAXATION!
During a consultation, my clients asked what the “exemption amount” for Federal Estate tax planning was. I responded by telling them the exemption amount is $5,459,000 this year. I also reminded them of the $14,000.00 annual gift tax exclusion.
Since my clients’ assets did not exceed $5,459,000, it was clear that NO FEDERAL estate tax exposure existed.
As the saying goes LONG STORY MADE SHORT (BTW, that’s impossible in law!) Now I had to explain the New Jersey Estate tax twist, and I realized this would take a while: The State of New Jersey enacted a law to create an Estate Tax for any estate with assets in excess of $2,000,000; simply put, the state was running in the “red” and as predicted in my website in 2002, it was only a matter of time before the state (a) realized it was operating in the red and should “do something…” and (b) realized that the Federal Estate Tax legislation of 2001 included a provision that phased out the Federal credit available to pay New Jersey Estate Taxation.
What this all means is: (a) The Federal Estate Tax exemption is $5,459,000 and (b) the New Jersey Estate Tax Exemption is $2,000,000. So that we are clear on this, any estate in excess of $2,000,000 must file two tax returns with the State of New Jersey i.e. the New Jersey Inheritance Tax Return as well as the New Jersey Estate Tax return. Additionally, all estates in excess of $ 5,459,000 must file the Federal Estate Tax Return Form 706 with the Federal Government. Also, so that it is crystal clear in the majority of New Jersey estates, life insurance is a taxable asset when payable to a named beneficiary.
The following chart illustrates the Federal Estate increases.
|Year||Exemption||Top Estate Tax Rate|
|2010||Estate Taxes Repealed for 2010|
So, do you revise or create your Estate Planning to cap off your Credit Shelter Trust a/k/a By-Pass Trust at the $2,000,000 formula? Also, do we create that Irrevocable Life Insurance Trust to transfer life insurance out of your name and therefore, removed from your taxable estate.
In case you felt this wasn’t that bad, please remember we are talking about approximately $33,000.00 TAXATION FOR A $3,000,000 New Jersey estate that has absolutely NO FEDERAL ESTATE TAX EXPOSURE; this taxation is imposed on the estate of the first spouse to die, and then again on the estate of the second spouse, which often is a higher gross estate due to property held with right of survivorship and other assets the surviving spouse owns as a result of the first spouses death.
I suggest to my friends and clients that it is definitely time for an Estate Tax Planning review. Contact us today.
Steven W. Tarta