When it comes to high-dollar decisions about estate planning, many people wrongfully believe they are not included because the federal tax exemption of $5.34 million is so high. While this is true, in New Jersey, you should be aware of the transfer tax because far more people are included under that umbrella.
In New Jersey, an estate larger than $675,000 at the time of your death can trigger the New Jersey Transfer Estate Tax. If you think you’re close, but not sure: cars, cash, bonds, life insurance, retirement accounts, real estate, bonds, stocks, and personal items are all included. A fair number of New Jersey residents hit that threshold with just their retirement plan and real estate. Depending on who will be the Beneficiary, there may be a separate inheritance tax of up to 18%. (See out prior blog post: https://lawesq.net/blog/2014/05/the-n-y-state-of-mind-changes-to-new- york-gift-tax-and-estate-laws/)
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There are a few things worth bringing up if you’re concerned about this tax. First of all, it is possible to plan around it. Using DING or NING trusts, which involve establishing trusts out of state, can be a great tool for addressing state tax concerns. Gifting and special plans for your retirement accounts can also address concerns for the future.
Setting things up in advance through a trust can also make it easier on your loved ones if you have passed away. There are many cases in which a simple will just won’t suffice. To talk specifics for your assets and plans, call us today 732-521-9455.
OK…this interests me because I have some clients in this situation with over $700,000 in IRA or 401K funds. There is a transfer tax when to a spouse ? How about an inherited IRA where the spouse is the beneficiary ? Or a child is a beneficiary to the IRA or 401K ?
Great questions, Gene, thank you for asking!
Normally, there is no estate tax or inheritance tax in New Jersey when there is a transfer to a spouse on death. In fact, so long as the beneficiary is a “Class A Beneficiary”, there is no inheritance tax at all. However if the spouse is a noncitizen, there is no unlimited marital deduction to the estate tax, so we may consider the use of a Qualified Domestic Trusts (“QDOT”.)
When the child (or children) of the owner of the IRA inherit the IRA account as beneficiaries, the IRA proceeds are considered a part of the deceased’s taxable estate and, thus, are subject to be $675,000 exemption. When any non-Class A Beneficiary inherits the IRA, they may also be subject to New Jersey Inheritance Tax.
As the articles suggests, there are also asset protection concerns independent of the tax issues associated- it is imperative that proper planning be considered.
Thank you again for interacting!