The State of New Jersey imposes an estate tax that is separate from the federal estate tax. Under current law, estates with a total value of more than $675,000 are subject to the New Jersey estate tax. This is in addition to New Jersey inheritance tax. The inheritance tax is based on the relationship between the decedent and beneficiary; the estate tax is based on the value of the gross estate.
If you are a New Jersey resident at the time of your death and you have assets with a gross value of more than $675,000, the executor of your estate will have to file a New Jersey estate tax return. For 2013, Federal estate tax returns are required only for estates of more than $5.25 million. It is important to note that the New Jersey estate tax does not apply to nonresidents, even if they own valuable New Jersey real estate or other property.
The value of your gross estate is calculated by adding up all of the assets you own at death, including New Jersey real estate, bank accounts and CD’s, investment accounts and securities, cars, other personal property items, proceeds from insurance policies on your life, unless you didn’t own the policy, retirement account funds, and small business interests.
In a ruling handed down by the New Jersey state appeals court on June 10, 2013, an estate that paid taxes based on a Bernard Madoff investment account that was later found to be worthless is not eligible for a refund for taxes paid. At the time of his death in 2006, Mr. Warshaw owned an IRA with Bernard L. Madoff Investment Securities LLC. His estate paid resident estate taxes of $88,677 on this IRA. Later on when Bernard Madoff was arrested on charges of securities fraud, the estate sought a refund of that amount, contending that the IRA was worthless because of Madoff’s arrest. The court held that in 2006 no one suspected that Madoff was running the largest Ponzi scheme in U.S. history and therefore denied the refund.
For estate tax purposes all assets are counted, regardless of whether it went through the probate process or not. Thus, real estate held in a living trust or a retirement account or life insurance for which you have named a beneficiary or a jointly owned bank account, all gets applied toward the $675,000.00 figure. Additionally,New Jersey has another quirky rule that includes back into your gross estate all gifts made within three years of your death.
While there is no estate tax due on assets that pass between spouses, the New Jersey exemption is not portable. This means any unused exemption from the first spouse to die is not transferable to the surviving spouse, so the first spouse must use it or lose it. A credit shelter trust, also called a bypass trust, can help in this instance. This allows both spouses’ $675,000 exemptions to be used.
Upon the first spouse’s death, the trust would receive from the first spouse’s estate an amount equal to the New Jersey estate tax exemption, $675,000.00. Any remaining balance would pass to the surviving spouse outright. No tax is due at the first spouse’s death because the first spouse’s estate tax exemption (675,0000.00) sheltered the amount passing to the credit shelter trust, and the unlimited marital deduction sheltered the balance passing to the surviving spouse.
The benefit of preparing and administering the credit shelter trust is that the assets in the trust will not be included in the surviving spouse’s estate at that spouse’s later death. Thus upon the death of the first spouse, an amount up to $675,000 is sheltered; upon the death of the surviving spouse, that spouse retains the use of his or her own estate tax exemption to shelter his or her remaining assets, up to $675,000.00. Thus a couple can shelter $1,350,000.00 from New Jersey estate taxes.
The New Jersey estate tax return is due nine months after death. If a tax liability exists, it must be paid at the time the return is due. If tax is unpaid, interest will accrue. Both the state and federal returns are extremely complicated, and the executor will need to hire an experienced professional to prepare them. Please contact the Law Firm of Benjamin Eckman to assist with all your Estate Planning, Estate Administration and Elder Law Needs.
IMPORTANT NOTE: NJ ELIMINATED THE NJ ESTATE TAX EFFECTIVE JANUARY 1, 2018.
Benjamin D. Eckman, Esq. concentrates his practice on Elder Law & Estate Planning. Elder law is intended to broadly assist “extended living”. An elder law practitioner provides the legal information necessary for persons whose lives will extend or have already extended beyond the time when all children are usually out of the house and when regular employment ceases. After the elder law attorney and client complete their work, legal documents have been drafted, tax considerations have been analyzed, and a plan to protect the elder’s estate has been implemented.
Benjamin D. Eckman’s practice focuses on Estate Planning & Elder Law – legal issues facing senior citizens. Benjamin D. Eckman received his Bachelor’s Degree in Business/Accounting from Touro College and his law degree from Seton Hall University School of Law. He is a member of the New York State Bar Association, the New Jersey State Bar Association, the National Academy of Elder Law Attorneys, the Elder Law Section and Real Property, Probate and Trust Section of the New Jersey State Bar Association, the Union County Bar Association, Passaic County Bar Association and the Bergen County Bar Association. He can be reached at (973) 709-0909, (908) 224-4357 or (201) 263-9161.