New Jersey Estate Taxation
A not so funny thing happened in my office the other day...
During a consultation my client asked what the "exemption amount" (for FEDERAL estate tax) was this year? I responded by telling them 2.0 million in 2006, 2007 and 2008,( an increase from 1.5 in 2005) then 3.5 million in 2009, no estate taxation in 2010 but a return to 1.0 million exemption in 2011 with federal estate taxes as high nas 55%. Also "gifting" was modified to show a 13,000 annual gift tax exclusion.
So, now it was clearly understood by my client that NO FEDERAL estate tax exists for the first $3,500,000. As the saying goes, LONG STORY MADE SHORT (BTW, that's impossible in law!) Now I had to explain one of the newest tax twists, and I realized this would take a while.: The state of New Jersey (among other states) enacted a "new" law in July 2002 to create an Estate Tax for any estate in excess of $675,000; simply put, the state is running in the red and as predicted in the April 2002 newsletter, it was only a matter of time before the state (a) realized it was operating in the red and should "do something..." and (b) realized that the most recent Federal Estate Tax legislation of June 2001 included a provision that decreased the Federal credit available to pay New Jersey Estate Tax.
What this all means is: (A) The Federal Estate Tax exemption in 2009 is $3,500,000 and (B) the New Jersey Estate Exemption is $675,000! To go one step further it is now the law in New Jersey that any estate worth $3,500,000 must file the (A) New Jersey Estate Tax Return in addition to the (B) New Jersey Inheritance Tax Return, in addition to the (C) Federal Estate Tax Return Form 706 for estates in excess of $3,500,000. Perfectly clear right? So, do you review/revise your Estate Planning to cap off your Credit Shelter Trust a/k/a ByPass Trust at the $675,000 FORMULA or the $3,500,000 FORMULA? In case you felt this wasn't bad, please remember you are talking about $229,000 IN TAXES FOR A $3,500,000 New Jersey estate that has absolutely NO FEDERAL ESTATE TAX .
The potential amount of the New Jersey estate taxation will increase in future years; The following chart illustrates such increase.
|
Year of Death |
Taxable Estate |
Tax Before New Law |
New Jersey Estate Tax Per Spouse |
|
2002 |
$1,000,000 |
- 0 - |
$33,200 |
|
2004 |
$1,500,000 |
- 0 - |
$64,400 |
|
2006 |
$3,500,000 |
- 0 - |
$229,000 |
|
2009 |
$3,500,000 |
- 0 - |
$229,200 |
I suggest to my friends and clients that it is definitely time for an Estate Tax Planning review.
- Steven Wayne Tarta
