One of the things that many people forget about when estate planning is state taxes. While many know about federal taxes, sometimes they forget about state taxes. In New Jersey, depending on when the person passes, there may be two, estate and inheritance taxes.
As a prerequisite, only those that are residents of our state pay our state’s estate taxes. And, the estate tax is only paid when it is higher than the inheritance tax.
New Jersey is phasing out the estate tax though. Specifically, if the resident died on or before the end of 2016, the estate tax exemption capped at $675,000. If the resident died on or before the beginning of 2017, but before the beginning of 2018, the estate tax exemption capped at $2 million. Finally, the estate tax is phased out for anyone that dies on or after January 1, 2018.
Like estate taxes, only those that are residents of our state pay our state’s inheritance tax. But, if they have property in the state, even if they do not live in the state, an inheritance tax may still apply.
Essentially, the inheritance tax is a tax that is applies when property is transferred from the deceased person to their designated beneficiary. It is this transfer of ownership that is taxed by the state. This tax is based on who receives those assets and how much there are entitled to receive.
The inheritance tax is much more complicated than the estate tax as it depends on several factors. These included what kind of assets the decedent owned. It also includes who the beneficiaries are and how they are related to the decedent. Of course, the date of death value of the assets and debts is factored, but where the beneficiaries lives is not a factor.
As readers can see from this brief explanation, taxes can complicate the estate planning process. This is why it is so important to contact a professional to craft a customized estate plan, like an estate planning attorney.