The federal estate tax exemption for 2014 is an impressive $5.34 million. Many New Jersey residents believe their estate plans can now be simplified since the majority of people’s estates will never reach that level. People believe their estate tax exposure is small, if anything.
However, those individuals may not realize that New Jersey has an estate tax as well. The estate tax exemption in the state of New Jersey for 2013 was only $675,000, which is much less than the federal exemption. Anything over that amount was taxed at a rate of 16 percent.
It is helpful that an estate less than the federal exemption will not be taxed at the federal level, but 16 percent could mean a significant amount of money in and of itself. Any estate planning done by New Jersey residents needs to consider the state’s estate tax exemption. This becomes even more important when added to the 16 percent inheritance tax also charged by New Jersey. Fortunately, this tax is only on specific assets inherited by specific people. Unfortunately, there is no exemption for inheritance tax.
Minimizing the amount of taxes owed by the estate will maximize the value of the estate being passed on to heirs. If the state estate tax exemption is not taken into consideration, the estate’s value could be diminished causing an heir to essentially be penalized twice by the state for taxes. Estate planning documents can be customized to an individual’s particular situation, which can provide for family members in such a way as to limit the amount of taxes they will pay on the assets they inherit.
Source: MarketWatch, The worst U.S. states to die in, Bill Bischoff, March 5, 2014