Hannah and Sam are a retired couple in Hackensack, New Jersey. Through hard work and frugality, they have managed to save $2 million. They are revising their respective Wills and plan to leave most of the money to their two children, with a small amount going to their two nephews.
Changes made last year to the New Jersey estate tax statute may have an impact on this couple and others in the state.
The new law raised the estate tax exemption to $2 million as of Jan. 1, 2017, from the previous $675,000. This means that the first $2 million of an estate is not subject to tax. Starting in 2018, the New Jersey estate tax will be eliminated entirely.
However, there are some important restrictions to this change:
- Money left to spouses is always exempt from the New Jersey estate tax. This means that if Sam or Hannah should die, the surviving spouse would not face any New Jersey estate tax.
- New Jersey still has an inheritance tax. This tax does not apply to inheritances left to spouses or children, but does affect other relatives – including siblings, nieces and nephews. The exemption for this class of beneficiary is only $500. As a result, Sam and Hannah’s nephews would more than likely face a tax bill on their inheritance.
- There is a federal estate tax which currently has a $5.45 million exemption. This means that an estate valued at less than $5.45 million would not be taxed by the federal government. However, if an estate is valued at an amount greater than $5.45 million then the excess would be taxed by the federal government at a tax rate of forty percent (40%). In this example, Hannah and Sam would not face any federal estate tax since their estate is less than the exemption.
As you can see, estate planning can be complicated. It’s important to consult with an attorney to make sure that your estate planning documents are written to minimize state and federal estate tax liability. At the Law Offices of Matthew L. Holden, LLC, we will work with you to ensure that your goals are met. Please contact us for more information on how we can help.