On October 14, 2016 Gov. Christie executed a new law that states New Jersey decedents who die during 2017 will not be subject to New Jersey estate tax unless their taxable estates are greater than $2,000,000. Thereafter, beginning with deaths occurring on January 1, 2018, the New Jersey estate tax is repealed. Those New Jersey decedents who died in 2016 with estates exceeding $675,000 will remain subject to New Jersey estate tax. The federal estate tax will continue to apply to estates greater than the federal exemption amount, currently $5,450,000, and the “annual exclusion” for gifting remains at $ 14,000.00.
This all occurred because the New Jersey’s Transportation Trust Fund, needed an increase in gas tax of $.23 per gallon of fuel to be used to maintain New Jersey’s transportation infrastructure. This fuel tax increase resulted in the changes to New Jersey’s estate tax law as one of the compromises made in Trenton.
New Jersey continues as one of the six states to impose an inheritance tax on transfers from a decedent to a beneficiary. The New Jersey inheritance tax is based on the relationship between the decedent and the beneficiary receiving assets from the decedent.
The new estate tax law has no impact on non-residents who own real estate or tangible personal property in New Jersey because non-residents are not subject to New Jersey estate tax but are subject to New Jersey inheritance tax. The new law makes no change in the taxes to which nonresidents are subject.
The estate tax repeal does not eliminate other issues to consider during the planning process. New Jersey death tax waivers are still required to transfer certain bank accounts, brokerage accounts, and securities of a New Jersey resident after death. Obtaining tax waivers is becoming a major administrative issue in New Jersey and can substantially delay access to cash and transferring inherited assets to the rightful beneficiaries. Because the tax waiver requirements do not apply to assets held in a decedent’s revocable trust, creating and funding a revocable trust is a strategy that should be evaluated during the estate planning process.
It is important to remember, that while estate taxes may have played a significant part in creating an estate plan that involves trusts, other factors – such as second marriages, young or disabled beneficiaries, death tax liens, or creditor concerns – continue to justify the importance that trusts play in a solid estate plan.