"New Jersey Estate Planning" Tag Archives

Published on: November 30, 2020

The Effect of Joint Ownership on a New Jersey Estate’s Inheritance Tax Liability

Except in the case of spouses, civil union partners and domestic partners, when a New Jersey resident dies owning a jointly held asset, whether it is real estate, stocks, bank accounts, etc., the entire value of the asset will be taxed as if it belonged to the decedent. If the surviving joint tenant can prove that a portion of it actually belongs to the surviving joint tenant and not the decedent, the New Jersey Division of Taxation may grant an exemption from taxation for that portion of the value of the asset. This makes selecting an estate administration and tax planning attorney extremely important.

In order to prove that a portion of the asset actually belonged to the surviving joint tenant, you must be able to show the surviving joint tenant’s financial contribution to the asset or that the surviving joint tenant inherited their portion of the asset from another. Depending upon the relationship between the decedent and the surviving joint tenant, the asset will be subject to inheritance tax at a rate between 11 percent and 16 percent. Class A Beneficiaries (which include spouses, civil union partners, registered domestic partners, parents, grandparents, and children) do not pay any tax on inheritances. Class C Beneficiaries (which include siblings of the decedent and spouses/civil union partners of a child of the decedent) receive $25,000 free from inheritance tax, are taxed at a rate of 11 percent on the next $1,075,000 of inherited assets and the rate increases as the amount inherited increases – up to 16 percent. While bequests to charities are not taxed, inheritances received by all other non-charitable beneficiaries not included in Class A or C are Class D beneficiaries and their inheritances are taxed at a rate of 16 percent for the first $700,000 and 17 percent for the remaining balance of the inheritance.

Many people list another person as a joint owner on an account or an asset because they believe it simplifies the estate administration and probate of the estate. But, it actually can result in a significant tax burden which might not have been due or would have been significantly lower if assets were not jointly held. Moreover, in New Jersey probate and estate administration are not difficult or expensive so it is not usually necessary to attempt to avoid it.

Published on: October 11, 2013

The Pitfalls of “Do It Yourself” Estate Planning

by Jennifer C. Meusel

The American Bar Association Task Force on Real Property Probate and Trust Law issued a report discussing the following shortcomings of drafting your own estate planning documents using the services of a “Do It Yourself” package. Some of those short comings are as follows.

Things are often more complicated than they seem. When a person writes their own will, often the results are not what she intended. For example, an elderly widow wants to divide her assets equally between her two adult children. Her assets consist or a house worth $500,000 and an IRA worth $500,000. She decides to write her own will giving one child the house and the other the IRA. Then after her death, it comes to light that the IRA, which has designated beneficiaries, is to be shared equally by her two children. Moreover, at the time of her death, her IRA is valued at $200,000 and the value of the house has appreciated to $600,000. So, one child receives the house and $100,000 from the IRA house, a total value of $700,000 and the second child receives $100,000 from the IRA. This was not what she intended. Having an experienced estate planning lawyer can help prevent this.
An estate planning lawyer offers more than the expertise in drafting your documents. A significant role of an estate planning lawyers is to counsel clients when making these important and personal decisions, for example, guidance on whom to choose as a guardian for minor children. While this may seem simple, it is complex decision on who is best suited to nurture children, but consideration must also be given the ability to provide financial support. Moreover, when a couple makes decisions, it may be important to have an attorney help the couple chose guardians who are acceptable to both parties.
In the event of a dispute after a person’s death, the court will often hear a wide variety of allegations about the decedent’s intentions – all from family members who have an interest in how the court will decide. This is a difficult role for a judge who will look to hear from a person who had discussion with the decedent while she was alive about how she wanted her assets to be distributed. Often, that person is the estate planning lawyer.
Technical issues with your will can render it void. A will must unequivocally state the decedent’s intentions. If you draft your own will, you might inadvertently use words which are meaningless in the probate court. For example, if you state “I would like my niece to have my car” would be an unenforceable provision. Moreover, the will must be executed in accordance with New Jersey probate and estate law in order to be admitted to probate and enforced.

Published on: August 21, 2013

Transfers in Contemplation of Death in New Jersey

by Jennifer C. Meusel

Gifting your assets to your intended beneficiaries is an effective way to minimize Federal and New Jersey Estate taxes. In order to do so, you must consider the tax implications of making the gift, who will receive the gift, the type of gift, the value of the gift, and the cost basis of the gift.

There are several possible tax liabilities which can be incurred as the result of making a gift: federal gift tax, capital gains tax, generation skipping transfer tax, federal estate tax, New Jersey estate tax, and New Jersey inheritance tax.

Gifts made in contemplation of death can trigger New Jersey inheritance tax liability if the value of the gift is over $500 and they are made within three years of the date of a person’s death. New Jersey Inheritance tax is a tax imposed upon certain classes of beneficiaries. Thus, you must consider who is receiving the gift before you can determine if this will result in liability. The New Jersey tax code separates beneficiaries into “Classes.” Class A beneficiaries pay no inheritance tax, Class C beneficiaries will pay tax on gifts over $25,000 made within three years of the date of death and Class D beneficiaries will pay tax on gifts over $500 made within three years of the date of death.

The decedent’s spouse, civil union partner, domestic partner, children, grandchildren, great-grandchildren, parents, grandparents, great-grandparents, and step-children are Class A beneficiaries, and no inheritance tax will be attributable to gifts made to these people. The decedent’s brother and sister, and son-in-law, and daughter-in-law (if they are the spouse of decedent’s predeceased child) are Class C beneficiaries. Anyone not included in Class A or Class C are Class D Beneficiaries.
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