Estate Planning Self Examination Checkup (Or, Only Grandparents Die in New Jersey)

Equity Shareholder and Chair of the Firm's Tax and Estate Planning Department, Robert F. Munoz begins an important series discussing many of the essential estate planning issues New Jersey residents face - including inheritance taxes, death taxes, property transfers and medical directives. 

Part I:  Help Me, I'm From New Jersey!

The purpose of this series is to provide New Jersey residents with the knowledge to evaluate whether or not they need to visit their estate planning attorney to update or revise their documents.  If you are reading this, and you do not have a will and you are over the age of 18, have any assets or children, you should have one prepared immediately.   The issues for a New Jersey resident include not only the specific laws concerning the ownership and transfer of property to be discussed later in this series, but also the various death tax regimes applicable to a New Jersey resident.

In New Jersey, you have three (3) opportunities to pay tax.  The first opportunity is granted to you by the Federal Government.  If your estate exceeds $5.45 million (2016), you are subject to the Federal tax.  In New Jersey, the state has a death tax called the “estate tax.”  The estate tax is for residents of New Jersey only.  The threshold for New Jersey estate taxation is $675,000.00.

If you are a resident of Florida but own property in New Jersey you are not subject to this tax. In contrast, if you are a New Jersey resident owning property in the state of Florida, the Florida property will be included in your estate for calculating the size of your estate and subjecting it to taxation.  While a credit will be given for the fact that the property is outside of New Jersey, you can rest assured that in most cases the amount of the credit does not exceed the amount of the potential tax.

Finally, because New Jersey needs another tax, transfers that you make may be subject to the “transfer inheritance tax.”  Legacies or transfers to people who fall into certain classifications will be subject to this tax.  For the most part, anyone who is not a lineal ascendant or descendant of the decedent is subject to the tax.  There are various exceptions, but for the most part if you leave property to a friend or distant relative they will have an opportunity to pay a tax.  While the state of New Jersey does not have a gift tax, the transfer inheritance tax does have a three (3) year lookback on gifts for the purpose of subjecting them to the tax.

As a New Jersey resident you may become confused about how the various death tax limits apply to you.   The $675,000.00 New Jersey threshold is easily met by most New Jersey residents with as few assets as a home, life insurance and a retirement account (individual or employer plan).  More importantly, the Federal exemption for a couple is really about $11 million on the second person to die if not used by the first to die.  The use by a spouse of the other spouse’s exemption is known as “portability.”  Not so under the New Jersey estate tax.  The exemption isnot portable.  A failure to use the exemption of the first to die results in the loss of the exemption.

If your present plan did not take these issues into consideration or your will was done before 2001, keep reading this series.  If you have not reviewed your plan for more than three (3) years, keep reading.  If you moved to New Jersey from another state, you must keep reading.  If all of this sounds foreign to you, stop reading and pick up the phone and call an attorney familiar with these issues.

If you are wondering why you just don’t move to Florida, it is probably because you have grandchildren in New Jersey.  If you don’t have grandchildren in New Jersey, keep reading this series anyway because we will also explain how to become a resident of Florida and still enjoy the Jersey Shore in the summer.

Quick Tip:  If you have children who are 18 years of age or about to be, you should give your children the information in this series to read after you have had them sign a power of attorney and an advance medical directive.  Once a child turns 18 years of age, the child is an independent adult.    Having a proper set of documents is equivalent of life insurance.  Hopefully you will not need it soon, but sooner or later everyone will.

Next in the series:  Getting your estate planning started.