NJ Estate Tax Letter
TO OUR CLIENTS AND POTENTIAL CLIENTS:
This letter relates to the revised New Jersey Estate Tax enacted July 1, 2002, retroactive to January 1, 2002. The recent changes in the Federal Estate Tax includes a phase-out of the Federal State Death Tax Credit, which is the amount of the New Jersey Estate Tax. New Jersey has in fact enacted legislation which would ensure continued tax revenue due from estates of New Jersey residents dying on or after January 1, 2002, by treating such residents as having died on December 31, 2001, when the Applicable Exclusion for Federal Tax purposes was $675,000. The Federal Estate Tax Applicable Exclusion has been increased to $1,000,000 for the years 2002 and 2003, $1,500,000 for the years 2004 and 2005, $2,000,000 for the years 2006, 2007 and 2008, and $3,500,000 for the year 2009. To the extent that the taxable estate exceeds $675,000 in any of those years, a New Jersey Estate Tax will be due.
The new federal legislation provides for a graduated rate structure which causes the New Jersey Estate Tax to be a larger and larger percentage of the estate. The New Jersey Estate Tax on $1,000,000 is $33,200. At $2,000,000 the tax is three times that amount, resulting in a tax of $99,600. At $4,000,000, the tax is $280,400.
|
Estate Tax Value |
$1,000,000 |
$2,000,000 |
$4,000,000 |
| Credit Amount 2001 |
33,200 |
99,600 |
280,400 |
| Extra "Cost"2002 |
33,200 |
24,900 |
70,100 |
| Extra "Cost" 2003 |
33,200 |
49,800 |
140,200 |
| Extra "Cost"2004 |
33,200 |
74,700 |
210,300 |
Your Wills are designed to take advantage of the Applicable Exclusion in the estate of the first decedent and therefore, upon that death, there will be a New Jersey Estate Tax due, i.e., if death occurs in 2003, the Estate Tax would be $33,200. If however, the amount of the Applicable Exclusion upon the first death was limited to $675,000, there would be no Estate Tax due regardless of when death occurred. Please bear in mind however that the New Jersey Estate Tax will be imposed upon the subsequent death of the surviving spouse, to the extent of the difference between the Applicable Exclusion amount claimed at date of death and $675,000. In other words, the tax will be due eventually, so that the downside of paying the tax at this point is the loss of interest thereon during the survivor's lifetime. The advantage of paying the New Jersey Estate Tax upon the first death, is to eliminate Federal Estate Tax on the difference between the Applicable Exclusion claimed at the time of the first death and $675,000 in the surviving spouse's estate, unless the surviving spouse dies in a year when the Federal Estate Tax repeal is in effect.
You may choose to either accept the fact that there will be a death tax payable upon the first death, in which case there would be no need to revise your Wills. In the alternative, you may decide to eliminate the subject tax upon the first death or, at the very least, provide for flexibility so that either the surviving spouse or the executor can elect to pay the tax or not at the time of the first death, in which case, your Wills must be revised.
Please call us to arrange for an office conference so that we may discuss this issue further if you so desire.
Areas Of Practice
- Estate Planning and Administration
- Wills and Trusts
- ERISA
- Pension Planning and Administration
- Business Succession Planning
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