My own layman’s guide, born of my own experience and observations – Part 1

Everybody knows NJ has long been one of the most onerous states to die in, but on October 14, 2016, this began to change.*

First of all, only 18 states (plus DC) impose death taxes. Secondly, NJ is one of only two states with two layers of death taxes. (Maryland is the other.) Finally, until this year, NJ’s threshold for estate tax was only $675,000.

Now, for NJ residents dying between January 1, 2017 and December 31, 2017, the estate tax threshold has been raised to $2,000,000. Then, beginning January 1, 2018, it will be eliminated entirely. That’s right: Zero.

But before you get too excited, don’t forget: there are still 2 types of death taxes!

NJ ESTATE TAX is just like every other estate tax. It is a tax imposed on the net assets of the deceased. (Net assets means add up all the assets, then subtract out certain expenses.) If the threshold is $2,000,000, and the net assets are less than $2,000,000, then there is no NJ Estate Tax.

INHERITANCE tax is more like a “transfer” tax. You still need to figure out the net assets, but then you also need to figure out who gets what. Depending on “who gets what,” there could be inheritance tax. Generally speaking, if the asset goes up and down (parents, children,) there is no tax. However, if the asset goes sideways (siblings, niece/nephew, neighbor,) there is still a high likelihood of inheritance tax.

And so we begin a short series on Estate Taxes in NJ. I’m not a lawyer, and I can’t (and won’t!) give you legal advice. But as a CPA with experience preparing estate tax forms (NJ IT-R, NJ IT Estate, Federal Form 706, as well as the annual 1041 series for estate and trust income tax,) I believe I can certainly write about the tax implications of preparing these forms.  I can also share what I’ve learned from my own experience and observations. With any luck, by reading about some of these issues, you can avoid them, and your own experience will go smoothly.

Topics we’ll cover include Vocabulary, Exactly what do you mean by asset? Why can’t we deduct this? What’s included with “Funeral expense?” Charity. General remarks on how to get yourself organized.

Finally, if you are really confused or unsure, do not try this at home! Just get a lawyer! Sure it will cost some money, but you will be able to sleep at night, confident that everything is being handled legally. If you are the executor/executrix, it is perfectly legal to delegate the handling of the estate to a lawyer.

*Of course, we all know that same piece of legislation also raised gas prices 23 cents/gallon beginning November 1, 2016, and introduced changes to sales tax. Beginning January 1, 2017, NJ sales tax was reduced from 7% to 6.875%. Beginning January 1, 2018, NJ sales tax will be further reduced to 6.675%. Try doing all of that in your head.