New Jersey lawmakers reached an agreement on Friday, September 30^th which, among other things, will phase out New Jersey’s state estate tax. The New Jersey estate tax exemption, presently $675,000, will increase to $2 million after January 1, 2017. The estate tax will then be eliminated after January 1, 2018. An official vote on an estate tax phase-out bill is scheduled in the New Jersey legislature for Wednesday, October 5, 2016, and the bill is expected to pass.

In New Jersey, the state’s estate tax is levied on any estate valued at more than $675,000.  The $675,000 exempt amount is the lowest estate tax threshold in the nation. The state’s estate tax is a tax assessed against the gross value of the estate, and it takes into consideration the value of real estate, businesses, stocks and bonds, savings and checking accounts, motor vehicles, boats — all assets owned by a New Jersey resident at time of death. The federal government also imposes an estate tax that is distinct from New Jersey’s estate tax.  However, the threshold for the federal estate tax is much higher than New Jersey’s threshold. The 2016 exemption for the federal estate tax is $5.45 million.

New Jersey has two, distinct death taxes—a state estate tax and an inheritance tax. The inheritance tax is imposed on estates worth more than $25,000, but affects only certain heirs. Close relatives, such as the surviving spouse, parents, children and grandchildren, are entirely exempt from the inheritance tax. Thus, close relatives do not pay any state inheritance tax, regardless of the size of the inheritance. Other relatives (such as siblings and their spouses or nieces and nephews) are taxed on inheritances over $25,000. The tax rate starts at 11% and rises to 16%, depending upon the amount inherited. Charities are taxed at a rate of 15% for the first $700,000 and 16% for amounts over that. The New Jersey inheritance tax remains, and has not been eliminated under the recent agreement.

The phase out of the NJ estate tax is part of a larger bill to replenish the state’s Transportation Trust Fund. The bill will increase the tax on gasoline to 23 cents per gallon while lowering the sales tax from 7% to 6.875% in 2017 and to 6.625% in 2018. Other items in the bill provide assistance to retirees, veterans and the working poor.

For additional information concerning estate planning and administration, visit: https://vanarellilaw.com/estate-planning-administration/