New Jersey Repeals Estate Tax, Not Inheritance Tax

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Update: On Oct. 14th, Gov. Christie signed into law the transportation funding bill, and the accompanying tax bill. It’s The Law: New Jersey Estate Tax Repeal In 2018 .

The New Jersey legislature today voted to repeal the state’s estate tax as part of a deal including a 23-cents-a-gallon tax hike to renew the state Transportation Fund. The once-wannabe Republican presidential candidate Governor Chris Christie is expected to sign the bills into law, which will mean he follows in the footsteps of the two vice presidential candidates Democratic Senator Tim Kaine and Republican Governor Mike Pence who oversaw the elimination of their state’s estate taxes in 2007 (Virginia) and 2013 (Indiana) respectively.

New Jersey estate tax repeal would be effective as of Jan. 1, 2018. The state estate tax exemption would go up from its current low $675,00 to $2 million for deaths as of Jan. 1, 2017.  That means an individual can leave $2 million to heirs without a state estate tax levy (money left to spouses is always exempt). For out-of-staters with beach houses, there’s another freebie—the latest legislation eliminates a provision that imposed estate tax on the New Jersey property of nonresident decedents.

But there’s a big catch for many New Jersey families. New Jersey imposes two death taxes—the estate tax and the inheritance tax. The inheritance tax in New Jersey is alive and kicking. New Jersey’s inheritance tax is levied on siblings, nieces and nephews–not spouses or children–and the exemption is a measly $500. There were 3,467 estate tax returns in New Jersey in 2014, and 4,849 inheritance tax returns (here’s a breakdown on returns by estate size).

State estate and inheritance taxes are separate from the federal estate tax, which has a generous $5.45 million exemption (with proper planning, a couple can shield $10.9 million). After that, there’s a 40% tax. Presidential candidate Donald Trump wants to repeal the federal estate tax, while his opponent Hillary Clinton wants to reduce the exemption to $3.5 million and add three rates of 50, 55%, and a top 65% rate for estates of $500 million or more.

Maryland is the only other state besides New Jersey that levies both an estate and inheritance tax. Maryland’s estate tax exemption is currently $2 million, and set to rise each year until in 2019 it matches the generous federal exemption (currently $5.45 million). See Where Not To Die In 2016 for a round-up on all 18 states plus the District of Columbia that impose death taxes.

Here’s an example of how this works in New Jersey now. Leave $727,000 to a “Class A” family member (a spouse, child, parent) and there is no New Jersey inheritance tax. The New Jersey estate tax would be $19,240. Leave the same $727,000 to a “Class D” family member (your niece or nephew), the first $500 is exempt and the New Jersey inheritance tax owed is $109,240. Under the new inheritance tax only regime, if children are heirs the estate would owe zip, but if siblings or aunts are heirs there would be inheritance tax due.

Credit:

Ashlea Ebeling, Forbes

Home Estate Blog New Jersey Repeals Estate Tax, Not Inheritance Tax

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