You could knock me over with a feather. I never thought I would live to see the day when the New Jersey Estate Tax would be repealed, but both houses of the legislature in Trenton passed a repeal bill, and Governor Christie signed it. (www.state.nj.us/treasury/taxation/njestatetax.shtml)
The New Jersey Estate Tax is Phased Out Over Two Years
Currently (2016), the New Jersey Estate Tax applies to the estates of unmarried individuals, or of a surviving spouse, on the value of the estate in excess of $675,000.00. Those with estates worth more than $675,000.00 pay the estate tax, based on the amount over this $675,000.00 deduction. The $675,000.00 deduction remains the law until December 31, 2016. However, as of January 1, 2017, the $675,000.00 exemption will grow to $2 million. Then, on January 1, 2018, the estate tax will be repealed entirely, under the new law.
What This Might Mean to You
The New Jersey Estate Tax is notorious because it unfairly impacts farmers and owners of small businesses.
Often, in order to pay the tax, the farm or business has to be sold, and this prevents its transfer to the next generation. Add to this that the asset had already been taxed once before, during the deceased’s lifetime, and you have an unfair tax. In order to avoid this outcome, many people set up life insurance trusts to pay the tax, and call for the creation of Disclaimer Credit Shelter Trusts in their Last Wills. These remedies are expensive, but the cost is far less than the tax, and its impact on the family. Many of my clients have undertaken these solutions. Obviously, these solutions are probably no longer needed, assuming you live to 2018, and remain in New Jersey.
Do I Change my Last Will?
I wouldn’t be in a rush to change your Last Will and Testament if you have a disclaimer trust provision. First, the New Jersey Estate Tax will not be repealed until 2018. Bad things happen. Then, even if you survive to 2018, the creation of the trust may not be mandatory, and the surviving spouse can decline to do so. I would leave your Last Will as it is. Don’t terminate your trust without competent advice, either. For those lucky among us, remember the Federal Estate Tax Exemption is roughly $5.5 million.
Finally, call me cynical, but what can be taken away, can also be restored. This is Jersey, after all. The state is in dire need of funds due to mismanagement of its expenses over past decades. Throw in the right political climate, and, well, you know the rest. This has happened in at least one other eastern state, as I recall. But, let us be happy for the present. In the meantime, I will be writing a lot more “Simple” Wills. Now where is my Advance Directive for Health Care? ‘Got to be sure I live until 2018…..
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