New Jersey's Death Tax May Soon Be a Thing of the Past

March 16, 2013 (Press-News.org) New Jersey's Death Tax May Soon Be a Thing of the Past

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Generally, the old adage that no press is bad press rings true, but a recent Forbes article highlighting New Jersey may be a rare exception. In the article, the magazine listed the state as one of the worst places in the nation to die.

The rating was based on the fact that New Jersey and Maryland are the only states in the nation to impose two types of death taxes: a transfer tax on inheritance and an estate tax on the deceased person's assets, if valued high enough.

The transfer tax is essentially a fee applied to property transferred outside of the family at the time of a person's death. In New Jersey, this fee is set at 16 percent of the value of the property. The estate tax imposes fees on certain assets once the value exceeds a certain amount. The federal amount is set at $5.1 million for 2012, but New Jersey begins charging fees when an estate's value reaches only $675,000.

Some legislators are hoping to rid the state's citizens of this tax burden. Assemblyman Ronald Dancer is leading the charge by introducing a bill that would repeal the transfer tax and raise the floor amount for state estate taxes, commonly referred to as death taxes. The bill also extends beyond this tax and would reduce other estate taxes used in New Jersey.

If passed, the law would apply to estates of those who died after December 31, 2011.

How Proper Estate Planning Can Reduce Taxes

With proper planning, it is possible to greatly reduce and even eliminate the presence of estate taxes on an inheritance. One way to cut down on these taxes is through the use of exemptions.

There are a handful of exemptions available, including personal and marital deductions. The personal exemption allows a portion of a person's estate to be transferred at death without fees. The amount that qualifies for this exemption is constantly changing, and at times is unlimited. An experienced estate planning attorney can keep you updated on this dynamic number.

The other commonly used exemption, the marital deduction, allows an individual to pass his or her estate to their spouse without penalties. As long as that individual is a U.S. citizen, the spouse will likely not have to pay taxes or fees on the estate that is transferred.

It is important to keep in mind that taxes are applied at both the state and federal levels. The intricacies of these taxes, along with the fact that tax laws are constantly evolving, as highlighted by the potential change proposed in New Jersey's legislature, can make navigating the issues tied to estate planning very complex.

As a result, it is important to discuss your estate plan with an experienced New Jersey estate tax attorney to better ensure that your estate plan takes advantage of the various tax planning strategies available for your unique situation.