“Death” Taxes: What You Need to Know
By Joseph Scorese, Esq.
As of January 2018, the New Jersey estate tax has been abolished after it was phased out slowly over a period of years. Thus, regardless of the size of an estate, there is no longer a requirement to file a New Jersey estate tax return or pay New Jersey estate tax. While New Jersey residents no longer need to worry about a “state” estate tax, a Federal estate tax still remains for estates of a certain size. New Jersey still has an inheritance tax that can affect heirs as well. This is why it’s still important to consult with Harwood Lloyd’s Estate Team in Hackensack NJ to help determine if your estate will owe taxes and plan strategies for reducing the financial burden on heirs.
Understanding Inheritance Taxes in New Jersey
Under New Jersey law, a beneficiary of inherited wealth may owe inheritance tax to New Jersey, despite their residence depending on their relationship with the deceased. Certain groups are exempt from the inheritance tax, including spouses, civil union partners, domestic partners, children, grandchildren, great-grandchildren, parents, grandparents, and mutually acknowledged step-children. All other relationships will trigger inheritance tax on the inherited amount. The tax rate is based on both the relationship with the deceased and the size of the inheritance. Harwood Lloyd’s estate attorneys can better explain these taxes and how to plan for them.
Federal Estate Taxes
Despite the abolishment of the New Jersey state estate tax, an estate can still owe taxes to the federal government. The federal estate tax exemption is currently $11.18 million but it’s portable, allowing couples to protect up to $22.36 million from the estate tax. When an estate exceeds this limit, the effective tax rate is a flat 40%. As an example, an estate valued at $18.18 million will have a taxable estate of $7 million. The total federal estate tax burden would be $2,800,000 million.
Planning for Estate Taxes
Even if you do not believe your estate will be subjected to the estate tax, it’s important to consult with Hackensack NJ estate planning attorneys like Harwood Lloyd. Estate planning lawyers can help you explore numerous strategies to avoid or limit the tax burden on heirs such as lifetime gifts, trusts, and even utilizing life insurance.
If you are concerned about potentially burdening loved ones with estate taxes or you are interested in planning for the future, contact Harwood Lloyd today to schedule a consultation with an estate planning lawyer.