In October 2016, New Jersey Governor Chris Christie signed into law a tax bill that effectively repeals estate taxes in the Garden State. While it will still be a year before the tax is abolished, there are several changes to the law that went into effect on January 1, 2017. These changes will affect many estate plans in the coming years.
NJ Estate Tax Changes for 2017 and 2018
Bill P.L. 2016, c. 57 raises the threshold for estate tax exemptions in New Jersey. Prior to 2017, the state’s exemption limit was $675,000, a threshold that was easy to surpass in the Garden State.
Approximately 3,500 estates are subject to estate taxes each year in New Jersey.
The new law pushes the exemption limit to $2 million for decedents dying between January 1, 2017 and December 31, 2017. These estates will no longer adhere to the federal Internal Revenue Code of 1986, but rather, follow the Internal Revenue Code for assessing the value of the estate.
Simply put, only estates with a value of $2 million or more will be subject to estate taxes if the descendent dies before January 1, 2018.
At the start of 2018, estate tax will not be imposed on the transfer of estates.
For non-residents who own property in New Jersey, the new legislation also eliminates a provision that also imposed estate tax on these properties.
The federal exemption on estate taxes is still $5.45 million (for single individuals), and NJ estates with this value will have to pay both state and federal estate taxes until January 1, 2018.
The recently-enacted estate tax changes will affect thousands of estates in New Jersey, and will require many individuals to update their estate plan. These plans will once again need to be changed in 2018 once the estate tax is abolished.
The elimination of the estate tax will ease the burden of leaving a high-value estate to loved ones. For the current year, the increased exemption level will at least provide relief to many families who already have to deal with the grief of losing a loved one. Tactics used to eliminate or minimizes these so-called death taxes are no longer needed for estates in New Jersey.
Federal estate taxes still apply to estates valued at $5.75 million or more for single individuals, so this also needs to be taken into consideration when updating your estate plan.
Inheritance Tax Remains Unchanged
The state of New Jersey imposes two types of death taxes: an estate tax, and an inheritance tax. While the estate tax has been repealed, the inheritance tax still remains unchanged.
The inheritance tax is only imposed on nieces, nephews and siblings, so children and spouses are not affected. The exemption for this tax is just $500, which means most individuals will need to pay the tax.
The inheritance tax rates starts at 11%, and increases to 16%, depending on the amount of money inherited. Typically, individuals are taxed at a rate of 15% for the first $700,000, and a rate of 16% for any amount exceeding that threshold.
Again, this tax is not levied on spouses and children – only other relatives.
Retirement Income Tax Break
Along with changes to estate tax, the law also includes a tax break on retirement income. The new legislation ensures that about 85% of retirees in the state will pay no income taxes.
The law exempts up to $100,000 in retirement income for couples. New Jersey does not tax Social Security benefits either.
Individuals can exclude up to $75,000 per year in retirement income, and $50,000 can be excluded for married couples filing separately.
Sealed Birth Certificate Changes
Changes to laws regarding sealed birth certificates may affect the estate planning process. New legislation will require the state’s Health Department to fulfill requests from adopted people for their original birth certificates. Providing access to sealed birth certificates will allow adoptees to obtain information about their birth parents.
The law was signed in 2014, but under the stipulation that it would not go into effect until 2017. Parents who did not want the state to release records identifying them could have signed a redaction form to have their name blacked-out.
Parents can still submit a contact preference form, which states whether they’d like to have contact with their child. Parents who opt not to have contact will be required to submit a family history form, which provides detailed information on the parent’s cultural, medical and social history.
The Micklin Law Group, LLC is a New Jersey law firm focusing on family law. Attorney Brad Micklin was recently named to The National Advocates list of Top 100 attorneys from each state. Brad has experience working with estate planning. You can read more on this topic by visiting our divorce blog. To set up a consultation, call 973-562-0100.