New Jersey Estate Tax Repeal

By: Frank R. Demmerly, Jr., Esq. and Richard J. Contant, Esq.

Ever since 2001, New Jersey has imposed an estate tax with an exemption of $675,000 and a tax rate on the remainder of up to 16%.  The New Jersey Legislature has just passed, and the Governor just signed, legislation which will phase-out the New Jersey Estate Tax as follows:

2016    $675,000 Exemption

2017    $2,000,000 Exemption

2018    The New Jersey Estate Tax is Repealed.

Therefore, for an individual who passes away in 2018 or thereafter, there is no New Jersey Estate Tax.

The Federal Estate Tax exemption in 2016 is $5,450,000.  In regard to a married couple, upon the death of the first spouse, the Federal Estate Tax exemption available to the deceased spouse can be carried over to the surviving spouse.  The surviving spouse would then have a Federal Estate Tax exemption of $10,900,000 (reduced by any prior use of the exemption and except in certain remarriage and non-citizen spouse situations).

Many married clients have utilized Trusts whereby the first spouse to pass away devises all or a portion of that spouse’s estate to a Trust for the surviving spouse.  Upon the death of the surviving spouse, all or a portion of the Trust is not subject to estate tax.  With the elimination of the New Jersey Estate Tax, and the significant exemption from Federal Estate Tax, many married couples who only used Trusts to save taxes may no longer need to utilize such Trusts.

Of course, there are many non-tax reasons for utilizing Trusts.  If one spouse passes away devising the entire estate outright to the survivor, the survivor may use and expend the assets without limitation, and could change the survivor’s Will and decide not to devise the estate in the same manner as the first spouse.  The survivor could make this decision based upon the survivor’s desires, influences exerted on the survivor after the death of the first spouse, or as a result of the survivor’s diminished capacity, or otherwise.  By using Trusts for the survivor, the assets passing into Trust on the death of the first spouse are protected from this concern.

After the death of both spouses (or for unmarried clients), Trusts may be needed to control the use, access and disposition of the estate by children or other beneficiaries.

BUT NOTE:  The New Jersey Inheritance Tax has not been repealed.  The Estate Tax is based upon the total value of the estate.  The Inheritance Tax is based upon the relationship to the decedent of the individuals receiving the estate.  While a spouse, civil union partner, and lineal ancestors and descendants of a decedent are exempt from the Inheritance Tax, brothers, sisters, their spouses and descendants, as well as other relatives and unrelated persons may be subject to a tax of 11% to 16%!

Also of interest in the same legislation are the following:

  • The new gasoline/diesel taxes will take effect November 1, 2016, and will increase 23 cents/gallon (total 37.5 cents/gallon).  The diesel tax will increase 27 cents/gallon (total 44 cents/gallon).
  • Starting January 1, 2017, the sales and use tax will decrease from 7% to 6.875%. On January 1, 2018, the sales & use tax will decrease again to 6.625%.
  • The Earned Income Tax Credit will increase to 35% of the federal benefit amount beginning in tax year 2016.
  • The exclusion on pension and retirement income (from state income tax) will increase over a four-year period to $100,000 for joint filers, $75,000 for individuals, and $50,000 for married/filing separately by 2020.
  • Veterans will be allowed to exclude $3,000 of their income from the state income tax.

This article is a very general overview, does not contain all of the terms and conditions of the foregoing laws, may apply to each of you differently, and may not be relied upon in your planning.  You must consult with counsel in this regard.