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Estate taxes and beneficiary designations

New Jersey residents who want specific assets to be passed to beneficiaries usually concentrate on providing these designations in a will. However, estate planning also requires a review of the beneficiary designations of other instruments, which may very well override different designations in a will.

For example, payable on death accounts pass to the beneficiary listed on the account, regardless of what the will says. This same concept applies to other accounts that have their own beneficiary designation, including life insurance and retirement accounts. Other assets will pass by the terms of a will if one is in place or the laws of intestacy of New Jersey. One way to change the beneficiary designation is to remove it completely, which will cause the asset to pass through the estate upon the person's death.

Making the estate the beneficiary of the life insurance policy can make the proceeds of the policy subject to creditor claims. However, POD accounts that pass to a beneficiary are still included in a person's estate for the purposes of estate taxes, and the transfer may be subject to New Jersey inheritance tax if the beneficiary is not an immediate family member. All assets are included in a determination of whether a person must file an estate tax return. In New Jersey, estates over $675,000 are subjected to this requirement while estates in excess of $5.25 million are required to file a federal return.

Individuals who want to be aware of the tax implications of their estate planning alternatives may wish to consult with an attorney who has a background in these matters. The attorney may be able to help determine the optimum ways to minimize state and federal estate tax burdens.

Source: NJ.com, "Biz Brain: Beneficiary designations can override will", Karen Price Mueller, December 09, 2013

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