Timing Your Passing

It’s never a “good year” to die; however, if you live in New Jersey and made it to 2018 with a sizable estate, it’s possible your estate’s tax exposure just fell considerably.

The amount exempt from the federal estate and gift tax had been scheduled to rise to $5.6 million so as to take into account inflation since 2011. With the tax legislation signed on December 22nd 2017, the exemption doubles, to $11.2 million in 2018. Should both partners of a married couple die in 2018, the exemption potentially could shield $22.4 million. However, the higher exemption expires in 2026.

Additionally, New Jersey finished phasing out its state estate tax completely for deaths after January 1st 2018. We still have an inheritance tax, so that’s something to consider depending on the relationship the beneficiary or transferee has to the decedent.  For the most part, no tax will be due if the beneficiary will be a spouse, parent, grandparent, or child (relationship defined as Class A). However, brothers, sisters, and more distant transferees may face an inheritance tax.

Click here for a chart of what the tax rates will be for 2018.

Click here to see which class someone would belong to.

Consider gifting

A program of tax-free annual gifts (up to $15,000 per beneficiary in 2018, $30,000 per couple) can be an easy and effective method for reducing future estate taxes. For example, grandparents with three children and seven grandchildren can give up to $300,000 to their descendants every year, or $1.5 million in just five years.

If the transferees or beneficiary are not as closely related, so that they would fall into class C, or class D, a gifting strategy could help avoid the New Jersey inheritance tax, but only if the gifts are not “death-bed gifts”. Under New Jersey law, any gift made within three years of death is presumed made “in contemplation of death”, and would have the inheritance tax applied as a death-bed gift. So this strategy should be started early on.

Should you worry?

It’s been estimated that perhaps only 1,000 estates nationwide will pay the federal estate tax in 2018. However, the higher exemption expires in 2026, and some politicians already have announced an intention to reduce the exemption should they come into power.

Estate plans will need to remain flexible as tax laws change.

The greatest reason to have an estate plan is still to decrease hardship for the beneficiaries, reduce arguments and fights, and clarify your preferences for how your property should be distributed.

Our Professionals at Garden State Trust Company

We have experience dealing with the problems and pitfalls of families’ wealth management and transfer. Our staff is sensitive to the types of issues that could arise, and would be glad to speak with you about how to best achieve your goals.

Click here to schedule a meeting.