Most people setting up their estate plan would like to be able to reduce the amount of estate tax on their acquired wealth as much as possible.
There are various ways to reduce estate tax. In New Jersey, the first $675,000 of one’s estate is exempt from estate taxation. Aside from spending the money, one simple way is to even up the assets owned by each spouse in order that each spouse has less than $675,000 in their estate at death. The spouse with fewer assets can be transferred property to hold in her or her own name.
One should be careful when transferring assets to one’s spouse, though, since transfer of some could trigger tax penalties. Additionally, should one spouse die and leave the surviving spouse with over $675,000 in their estate, the surviving spouse would need to take steps to avoid estate tax at his or her death.
Another approach for reducing the size of one’s estate is to make lifetime gifts to family, friends, or charity. Until 2013, one may gift up to $5 million each year free of gift tax. Married couples may each give away $5 million. New Jersey does not tax for lifetime gifts. One should be careful about the timing of the gift, though, since gifts made within three years of death will be subject to New Jersey inheritance tax upon the death of the donor, unless the beneficiaries are children of the deceased donor.
When one does lifetime giving, one will still need to fill out a gift tax return. One will need to value the gifts as required by federal statute. For real property, one will need to determine the basis of the property, and the correct basis will need to be applied to the done.
When estate planning, it is critical to have a knowledgeable attorney who understands your financial situation and the applicable law, to ensure that your estate planning goals are efficiently accomplished.
Source: Star Ledger, “Retirees want to pass on assets without complicated taxes,” Karin Price Mueller, 16 May 2011.