Estate planning consists of more than drafting a will, establishing a health-care directive and appointing a durable power of attorney. Unfortunately, it also entails considering how various state taxes will affect your estate, which can determine the plans you decide to make.
One such tax to worry about in New Jersey is inheritance tax. Only one other state requires this tax: Maryland. This is the information you need to know about how this tax law may affect your estate.
Whom does the inheritance tax apply to?
Not everyone is subject to this law. It applies to you only if you leave your estate to a Class C or D beneficiary. Examples of such people include your:
- Nieces and nephews
- Children's spouses or civil union partners
The tax rate depends on the beneficiary class and the size of the inheritance. If it does not exceed $500 and is going to a Class D member, no tax is due. For Class C members, the exemption goes up to $25,000.
How can you work around the inheritance tax?
The good news is that your loved ones can avoid paying for their inheritance. One way is to gift assets to them before you die. You can also set up a living trust. These routes also come with the benefit of making you more eligible to receive Medicaid once it has been five years since the transfer of your assets.
Another option is to move to another state, most notably, New York. This does not require a big move. It can simply be changing to a nursing home across state lines to avoid the tax. New York also accepts more Medicaid applicants than New Jersey does. Discuss with an estate planning attorney which is the best approach for your circumstances so that your loved ones can receive as much of their inheritance as possible.