This is a good question and it can change from year to year. So, the year in which you die may have a significant impact on whether your estate will be taxed and if so, by how much.
Let's begin with the basics. First, in New Jersey, there are two types of estate tax (i.e., taxes that are assessed against an estate when someone dies). There is what is known as the “Estate Tax” and then there is something called the “Inheritance Tax.” They are not the same.
Prior to this year (2018), New Jersey had an “Estate Tax” which was assessed based on the size of the estate. In 2017, the estate needed to exceed $2,000,000 to be subject to this tax. Prior to that, the exemption was $675,000. However, in 2016, Governor Christie signed legislation that phased out the New Jersey “Estate Tax” and now, starting in 2018, the New Jersey Estate Tax has been eliminated. However, there is still the Federal Estate and Gift Tax to which all estates are potentially subject which now has an exemption $11,200,000 per individual ($22,400,000 for a couple). The long and short of it is that if you have an estate that is under $11,200,000 (yes, the 99.999% of all of us!), you don't have to worry about any type of “Estate Tax” if you die in New Jersey starting this year (2018).
Now, what is this thing called the “Inheritance Tax?” Despite the change in the Estate Tax as noted above, New Jersey still has an Inheritance Tax. But unlike the Estate Tax, the Inheritance Tax is against the individuals named in the will or those who inherit if you die intestate (i.e., without a will) depending on their relationship to the testator (or decedent). Some people are exempt from this tax, such as your spouse, children and grandchildren. They are referred to as Class “A” beneficiaries. However, as you move out laterally to people like siblings, nieces and nephews and more distant relatives and friends, they can be either Class “C” or “D” beneficiaries who are then subject to taxation, regardless of the overall size of your estate. The taxation rate ranges from 11% to 16%. Charitable organizations and 501(c)3 non-profits are Class “E” beneficiaries and they are exempt from taxation.
There are other details to be worked out, but essentially that is how the estate tax laws apply to New Jersey, at least as of the date of this blog. BTW, there is no Federal “Inheritance Tax.” Click here for the New Jersey Inheritance tax classifications and rates.
Tax laws change over time, depending on the politics of the day and tax policies at the State and Federal levels so you want to keep abreast of what is happening. Of course, the size of your estate can increase as well (boy, wouldn't that be a nice problem to have!) or you may have gotten married or divorced, so a change in your circumstances may also be cause for reviewing your will and overall estate plan.
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