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In New Jersey, tax planning includes inheritance tax, P.1

Though inheritance tax is something many New Jersey residents may not be aware of, it is part of the reality of estate planning in this state. Inheritance tax is basically a tax imposed on an estate based on who inherits the assets. New Jersey's inheritance tax is additional to the estate tax at the federal and state level.

Tax planning, a basic part of estate planning, needs to take in multiple types of taxation. During 2011 and 2012, the federal estate tax exemption amount is $5 million. An estate that exceeds that value is taxed at a 35 percent rate. The same numbers apply to federal gift tax during 2011 and 2012.

New Jersey imposes a tax on estates exceeding $675,000, and then an inheritance tax for all real and personal property and intangible property exceeding $500. Intangible property refers to items such as copyrights, trademarks or patents.

As we mentioned, New Jersey Inheritance tax is imposed based on who inherits the assets. According to the Bergen County Surrogate's Court website, most estates will not encounter the tax, since the tax is not imposed on "Class A" beneficiaries. That includes a spouse, child or further descendent, parent, grandparent, or stepchild. No inheritance tax is due on gifts left to charities, educational institutions, churches, hospitals, libraries, or the state of New Jersey or any of its political subdivisions. An Inheritance Tax Return form needs to be filed if any portion of the estate is not left to Class A beneficiaries.

New Jersey's inheritance tax doesn't apply to gifts which were made in excess of three years prior to your death. Neither would the tax apply to gifts made after your death if your executor is able to prove that the gift wasn't made "in contemplation of death."

In our next post, we'll continue with this topic.

Source: Star Ledger, "Inheritance tax only hits gifts within three years of death," Karin Price Mueller, August 29, 2011.

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