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Recent Changes in New Jersey Estate Law

Grandpa with Daughter

As the economic challenges that have impacted the United States over the last half dozen years continue to have a lingering effect on the financial stability of individuals, corporations, and governments, legal experts have watched the legislature in New Jersey to see whether or not it would move to increase revenues to the detriment of citizens who have lost friends or family members.  To date, this has not happened.

Estate and inheritance taxes are a great source of revenues for governments.  New Jersey has taken advantage of this fact with its dual taxation model.  It is one of the few states in America that imposes both an inheritance tax and a state estate tax.  The estate tax is imposed on any credit allowance established under the Federal estate tax that is not used up in death taxes that were paid to any other U.S. state, territory, or the District of Columbia.  In essence, it is the difference determined by aggregating the inheritance, legacy, and succession taxes paid and subtracting that sum from the allowable credit.  New Jersey effectively is taxing estates that are fully or partially exempt from inheritance taxes, if there is any credit remaining.

The inheritance tax is an issue when the decedent resided in New Jersey and bequeathed property to a person who was not a close relative of the person who died.  This is one of the ways in which New Jersey brings in additional revenues.

New Jersey has a series of classifications of beneficiaries, which determines exemptions from the inheritance tax and the applicable tax rate for those who are subject to the tax.  These categories are:

  • Class A – This includes spouses, parents, grandparents, civil partners, domestic partners, and descendents, who are all exempt from the inheritance tax;
  • Class B – was eliminated under a previous rule revision;
  • Class C – Siblings of the deceased, as well as a child’s spouse or widow(er) or civil union partner, will receive an exemption for the first $25,000 in inherited property. A tax rate of 11-16% will apply to any amount in excess of $25,000;
  • Class D – All other beneficiaries that were not part of the above categories are part of this class.  These individuals only get an exemption for the first $500.  Any amount over this is taxed at a rate of 15-16%; and
  • Class E – This pertains to charitable gifts made to New Jersey, as well as gifts to churches, educational institutes, hospitals, orphanages, libraries, and other specified nonprofit agencies.

An additional way in which New Jersey collects revenues is by imposing an inheritance tax on non-exempt parties when the decedent gave the party a gift in the three years before death.  However, it is possible to fight the tax if there is evidence to support the fact that the gift was not made “in contemplation of death.”

All of this is a very quick overview of a very complex field of law that has not changed significantly over the last year, but which is being carefully watched in the event New Jersey decides to try to eke out a little more revenue as it is highly unlikely that the state will be giving money back to individuals.

For some, it is unfathomable that they work hard for their money and it is taxed as it is earned, then it is taxed again when those funds are passed on to loved ones in the event of death.  However, this is exactly what happens when estate or inheritance taxes are assessed against the assets of the deceased.  It is important to have the expert legal advice of skilled estate attorneys when making any decisions about structuring an estate for the transfer of assets or dealing with the administration of an estate after the death of the friend or loved one.  The Micklin Law Group, LLC has the knowledge and experience to assist you in all stages of the process.  To schedule an appointment to discuss your case, please call (973) 562-0100.

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