Beware of New Jersey State Inheritance and Estate Taxes!

Think you don’t have to worry about estate taxes because of the new generous federal estate tax law? Not so, for families in 21 states and the District of Columbia where separate state levies are still a big concern. “For the vast majority of people who are wealthy, the fear factor of the federal estate tax is gone, but many still need to focus on state estate and inheritance taxes.”

With 2012 fully behind us and the laws for 2013 fully on the books (both federal and state), there finally are some solid numbers from which to base your tax planning. Such is the case with the federal estate and gift tax exemption pegged at $5.25 million per taxpayer (and an almost “automatic” $10.5 million per married couple). However, if you reside in one of more than 20 jurisdictions that assess an independent inheritance or estate tax, then beware.  New Jersey is one of two states that imposes both an inheritance and estate tax.

According to the Division of Taxation's website: "The Transfer Inheritance Tax rates depend on the amount received and the  relationship between the decedent and the beneficiary. No tax is imposed on class A beneficiaries (father, mother, grandparents, descendants, spouses, civil union partners, or domestic partners). Class C beneficiaries (brother or sister of decedent; husband, wife, or widow(er) of a child of decedent; civil union partner or surviving civil union partner of a child of decedent) are taxed at 11%–16%, with the first $25,000 exempt. Class D beneficiaries (not otherwise classified) are taxed at 15%–16%, with no tax on transfers having an aggregate value of less than $500. Charitable institutions are exempt from tax."

The exclusion in New Jersey with respect to the estate tax is $675,000.00.  As has been mentioned numerous times in my blog, it is very easy for a married couple living in New Jersey to exceed $675,000.00.  The top estate tax rate in New Jersey is 16%.  When you consider the value of a home, life iinsurance, and a retirement plan it is very easy to exceed $675,000.

Regarding other jurisdictions, Forbes recently provided some helpful information in an articlebluntly titled “Where Not To Die in 2013.”

There always are myriad state level taxes to consider. However, here’s the rub: several states may overlap one tax-wise, not to mention federal level taxes. For example, 22 jurisdictions (including the District of Columbia) exact some form of taxation. Problem: none of the taxes for these jurisdictions were written with the current federal taxation limits in mind, because those have only been on the books since the beginning of the year.

So what states are the worst for 2013? It’s worth clicking over to the original article and map on Forbes.

For more information please visit my website: www.millsestateplanning.com.

Reference: Forbes (January 28, 2013) “Where Not To Die in 2013”