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.
New Jersey is one of the only states to have both an estate tax and inheritance tax. Currently, New Jersey has an estate tax rate of up to 16% on assets more than $675,000. Furthermore, New Jersey has an inheritance tax of 16% that applies to people other than spouses, children and parents. These taxes are in addition to the federal estate tax.
When it comes to estate planning, one of the most important aspects which most people pay attention to is avoiding unnecessary tax liabilities. This has been an especially important concern for many people in New Jersey, since it is one of only two states in which people are required to pay the estate tax as well as the inheritance tax. However, some state lawmakers are now looking to change this situation.
Nearly everyone is aware of the federal estate tax exemption, which is a generous $5.34 million per person for 2014, according to the Internal Revenue Service. Most people feel that they do not have to worry about estate taxes since the majority of estates do not reach this level. However, for those of us in New Jersey, the state assesses both estate tax and inheritance tax, and without proper planning, these taxes can quickly diminish an estate.
It is not unusual for someone in New Jersey to become the inheritor of real estate or other related assets. In fact, it is quite common that, when someone dies, their property is inherited by someone else. In this case, there are inheritance tax realities that should be considered ahead of time by all involved parties. After all, inheritance tax issues will affect the inheritor in a number of ways.
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.
New Jersey residents who want specific assets to be passed to beneficiaries usually concentrate on providing these designations in a will. However, estate planning also requires a review of the beneficiary designations of other instruments, which may very well override different designations in a will.
New Jersey residents who want to leave assets to their loved ones after their death must do more than prepare a will. A will outlines who gets property that doesn't have a named beneficiary. Assets such as retirement accounts, life insurance policies and joint bank accounts are not subject to a will. They are passed on to the beneficiary without involvement from the probate court.
U.S. citizens may be pleased that the federal government has offered generous estate tax deductions; however, they should not get too complacent yet. New Jersey is one of the 19 states that still levy death taxes. Several states, including Washington, D.C., assess estate taxes, and seven states collect inheritance taxes, which are paid by the decedent's heirs as opposed to the estate. New Jersey and Maryland are the two states that assess both; however, New Jersey offers one of the lowest exemptions at $675,000.
While the Federal government is giving beneficiaries a generous estate tax exemption, states like New Jersey are not. In fact, New Jersey imposes an estate tax and an inheritance tax on estates with a value about $675,000. Some attorneys who do estate planning for their clients recommend that they move to a state such as Florida that does not have a death tax.