Our New Jersey readers have already heard about the upcoming expiration of the $5.12 million federal estate tax exclusion amount. That number will drop back down to $1 million if Congress fails to act by the end of the year. At this point, it isn’t clear exactly what will happen, but many people are preparing for the big decrease by making last minute gifts.
For folks in New Jersey, there is also a state inheritance tax to deal with in addition to the federal estate tax. The exclusion amount on the New Jersey inheritance tax is currently $675,000 and that is not expected to change anytime soon. Not all beneficiaries in New Jersey are subject to inheritance tax, however. Class “A” beneficiaries-which includes a spouse, parent, children, grandchildren, step-children-are not taxed this way.
In calculating the federal and/or New Jersey estate tax, debts such as medical and credit card bills and costs such as funeral and estate administration expenses are subtracted from the gross estate. For estates that exceed the exclusion amount, though, there are likely to be planning opportunities.
Working to reduce or eliminate death taxes is an important piece of estate planning. One important way to do this is by gifting assets prior to death. Planning for such matters isn’t necessarily easy, though. For example, one has to make a proper analysis of capital gains tax ramifications before making a gift. One should also consider one’s own financial needs. In any case, the various possibilities should be considered, and this is part of what estate planning is about.
Source: nj.com, “Biz Brain: Getting an estate in order and planning for death taxes,” Karin Price Mueller, August 20, 2012