New Jersey Estate Planning Attorney Examines Concerns Regarding Latest Estate and Inheritance Tax Law
Moorestown, NJ (Law Firm Newswire) October 22, 2012 - Many clients are coming into The Begley Law Group to discuss their options for estate planning and estate administration.
"Our clients first concern is the two types of possible tax assessments against an estate," says New Jersey estate planning attorney Ethan Ordog. "Estate tax can include an assessment from the state in which the individual passed away or owned property, as well as the imposition of federal tax, based upon those assets in which an individual would otherwise direct for distribution to heirs from their estate."
The estate tax is calculated in consideration of the net value of the property owned by the decedent at the time of death. An estate, depending on the relationship of the heirs receiving a distribution from the decedent, may be subject to inheritance tax - a type of state tax calculated based on who receives property, and how much they receive.
On January 1, 2010, the federal estate tax was officially repealed. In December, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act, which reinstated the estate tax retroactively to January 1, 2012 and also set new rules for estates of those passing in 2011 and 2012.
At the end of 2012, unless a new law is enacted, the estate tax reverts back to the laws in effect in 2001/2002. Presently, the federal estate tax exemption is $5,120,000, with those estates exceeding such amount taxed at a rate of 35%. If no action is taken, the federal estate tax exemption shall drop to $1,000,000, with estates with assets over such amount, taxed at a rate of 55%.
As of 2012, a New Jersey estate tax return must be filed if the decedent’s gross estate, plus adjusted taxable gifts, exceeds $675,000. The New Jersey estate tax is calculated by either taking the maximum credit for state inheritance, estate, succession or legacy taxes allowable under the IRS code in effect on December 31, 2001, called the 706 method, or an amount determined pursuant to the simplified tax system, prescribed by the Director of the Division of Taxation, state of New Jersey.
The form 706 method must be used if the taxpayer is required to file a federal estate tax return, IRS form 706. If the taxpayer is not required to file the IRS form 706, then, in addition to the form 706 method, the simplified form method may be used, so long as it produces tax liability similar to the form 706 method.
The New Jersey estate tax rate is progressive and maxes out at 16% for estates above $10,040,000. The estate return, as well as the corresponding estate tax due, must be filed and paid within nine (9) months of the decedent’s death, or nine months plus thirty (30) days, if the form 706 method is used. An extension of time may be requested, although, even if granted, the payment is not extended for the corresponding tax due.
For those individuals directing assets to beneficiaries in New Jersey, it is important to understand the applicable tax considerations. New Jersey now defines three distinct classes of individuals for inheritance tax purposed. Class A beneficiaries, which include spouses, civil union partners, domestic partners, parents, grandparents and descendants, are all exempt from New Jersey inheritance tax.
Class C beneficiaries, which include siblings, the spouse or widow(er) of a child of the decedent, and the civil union partner or surviving civil union partner of a child of the decedent, receive an exemption equal to the first $25,000 of an inheritance, with transfers exceeding $25,000, taxed at a rate between 11%-16%.
Class D beneficiaries, which include all other beneficiaries, receive an exemption equal to only the first $500, with transfers exceeding such amount taxed at a rate between 15% and 16%. Additionally, all charitable organizations are exempt from the payment of New Jersey inheritance tax. A New Jersey inheritance tax return must be filed and the tax paid within eight months after the decedent’s date of death.
It is of note that life insurance paid to a named beneficiary, regardless of the class, as defined by the state of New Jersey, is exempt from New Jersey inheritance tax. Moreover, although a Class A beneficiary is not required to file a New Jersey Inheritance tax return, they must file a form L-8 to secure the release of a New Jersey bank account, stock, bond or brokerage account held in the decedent’s name. Further, if there is any New Jersey real estate titled in the name of the decedent, then form L-9 or form L-9NR, for a nonresident decedent, must be filed in order to obtain a release from the state’s lien on the real estate.
Accordingly, in order to best understand what steps can be taken to take advantage of estate planning available to clients, as well as further updates regarding changes to the law, or if assistance is needed regarding the administration of an estate, or as a beneficiary thereof, it is important to consult an attorney regarding those specific needs. The Begley Law Group, P.C. is more than willing to discuss these and other matters affecting their clients.
To learn more about Begley Law Group call 1.800.533.7227 or visit www.begleylawgroup.com.
Begley Law Group, P.C.
509 S. Lenola Road, Building 7
Moorestown, NJ 08057
- COMPARISON BETWEEN TRANSFERS TO CHILDREN’S TRUSTS AND TRANSFERS TO INDIVIDUALS
by Thomas D. Begley, Jr., CELA The following chart compares the advantages and disadvantages of an outright transfer of assets and putting assets in a Children’s Trust. Trusts v. Transfers Comparison Issue Children’s Trusts Individuals Look-Back Five Years Five Years Control None None Risk Avoidance Yes No Estate Recovery Maybe No Income Tax Parent Children Gift Tax Maybe Yes Step Up in Basis Yes No Principal Residence Exclusion Yes No
- FUNDING AND TAX CONSIDERATIONS INVOLVING CHILDREN’S TRUSTS IN MEDICAID PLANNING
by Thomas D. Begley, Jr., CELA Funding Many clients who use Children’s Trusts as part of their Medicaid planning are non-crisis planning clients. They either have an early diagnosis or are elderly but in good health. They are doing advance planning and want a sense of independence. They do not want all of their assets in a trust. Good practice dictates that the lawyer have a discussion with the client and determine how much the client feels should be kept out of the trust to give the client a feeling of comfort. The client should understand that the funds retained [...]
- CHILDREN’S TRUSTS AND MEDICAID PLANNING
by Thomas D. Begley, Jr., CELA (Originally published in the June issue of “The Straight Word”) Under a Children’s Trust typically a parent transfers assets to an irrevocable trust for the benefit of her children and reserves no right to access to either income or principal. One or more children usually serve as trustee. The trust document authorizes the trustee to distribute income and principal to children, subject to the approval of a trust advisor who is not a trust beneficiary. The trust advisor may be a spouse of a trust beneficiary or even an attorney or law firm. A [...]
See other news sources publishing this article. BETA | Tags: new jersey elder law, new jersey elder law attorney, new jersey estate planning, new jersey estate planning attorney, new jersey estate planning lawyer, New Jersey personal injury settlement consultant, New Jersey Special Needs attorney, New Jersey Special Needs Lawyer, New Jersey Special Needs planning, new jersey veterans law, nj elder, nj estate planning, nj estate planning attorney