The recent fiscal cliff tax deal, as we’ve previously noted, indefinitely extended the $5 million per person estate tax exemption amount. The exemption, indexed for inflation, is now at 45.25 million. That’s pretty generous, and makes it so that many people don’t have to worry too much about any estate tax at the federal level. That being said, there are still state inheritance and estate taxes to consider.
A recent article in Forbes highlighted the high cost attached to dying in certain states, pointing out that 21 states and the District Columbia impose significant taxes on the estates of the deceased. For the families that live in these states, those costs can be irksome. So can the shifting tax levels. Because these levels are subject to change, it is critical to pay attention and keep one’s estate plan updated.
In contrast to the federal exemption, state estate tax exemptions typically exempt $1 million or less per estate from their tax and impose a top rate of 16 percent. Some states levy only an inheritance tax, with the rate depending on the relationship of the heir. Two states, one of them being New Jersey, impose both estate and inheritance taxes.
In New Jersey, the exemption amount for estate tax is $675,000, with the top tax rate being 16 percent. For inheritance tax, there is no exemption, and the top rate is also 16 percent.
For residents of New Jersey, planning around the state estate tax is an important part of the estate planning process. Working with an experienced attorney on this is important, as is keeping the plan updated for any changes in state law.
Source: Forbes, “Where Not To Die In 2013,” Ashlea Ebeling, January 28, 2013