YOUNGER LAW NEWS: NEW JERSEY GASOLINE TAX INCREASE SIGNALS NEED FOR A NEW LOOK AT ESTATE PLANNING - - PART I
You may ask what the gasoline tax has to do with New Jersey estate taxes. Here’s the connection. On October 14, 2016, Governor Christie signed into law a bi-partisan bill increasing the New Jersey gasoline tax. Attached to the bill was a long-awaited provision phasing out the New Jersey Estate Tax over a 14-month period. The New Jersey Legislature had wanted to increase the gasoline tax for a long time. The Governor had been opposed for just as long. At the same time, the Governor wanted to repeal New Jersey’s estate tax, the least friendly in the nation. And the Legislature was just as opposed to it.
Anyone who is up on the news knows that New Jersey is at a fiscal crisis because of budget deficits and a transportation trust fund that was about to run out of money. The accord reached gave both sides what they wanted by giving up their opposition demands. The speculation is that the Legislature gave in because the Governor won’t be around much longer: his term is up in January 2018, at which time the Legislature, with a presumable Democrat as Governor, would be free to roll back some of the estate tax cuts. It might even happen sooner, if Governor Christie is appointed to a position in the Trump administration, but that would depend on Governor Kim Guadagno’s position on estate taxes. We will know what happens soon enough.
Let’s look at what will be happening when the death tax aspect of the gasoline tax law kicks in.
For individuals who die on or after January 1, 2017, the Estate Tax Exemption for New Jersey residents will increase from $675,000 to $2,000,000. For individuals who have already died, or who die before January 1, 2017, the exemption will remain at $675,000, the worst in the country.
For individuals who die on or after January 1, 2018, the New Jersey Estate Tax will be eliminated for New Jersey residents. The Federal estate tax exemption is not affected.
Barring any further changes, this is good news for New Jersey residents. I know many people who have become residents of Florida, Delaware or other states where there are no death taxes, or where death taxes follow the Federal estate tax exemption of $5.45 million (to be increased on January 1, 2017 to $5.49 million). If the New Jersey law holds, there will no longer be a reason to change one’s official residence if the only reason is to escape the New Jersey estate tax.
Let’s say that, after Christie is gone, the Legislature decides to roll back the estate tax exemption to $2.0 million for 2018. That means a couple with assets worth $4.0 million can completely avoid New Jersey estate taxes - - through proper use of trusts. This would apply to the vast majority of couples. In short, the disappearance of the New Jersey estate tax is great news for taxpayers. I will defer to financial experts for comment on the potential budget deficit New Jersey will suffer by the loss of estate tax revenue.
I should also mention that there are some advantageous changes to retirement income exemptions that are part of the law. And there will be a decrease in the sales tax from 7% to 6.875%. That translates to a savings of a whopping 87 ½ cents for every $100.00 you spend.
The New Jersey inheritance tax, on the other hand, remains unchanged. The inheritance tax is levied on the recipient of a portion of an estate (as opposed to a tax on the size of the estate of the decedent). The good news is that there will still be no tax on inheritances received by spouses, parents and descendants (children, stepchildren, grandchildren, great-grandchildren, etc., or charities. However, bequests that exceed $25,000.00 to siblings and in-law children, and bequests to anyone else will continue to be taxed at current rates, which vary from 11% to 16%.
Although the new changes to the law make taxation of estates easier and more affordable, it does not necessarily mean that you should refrain from reviewing your estate plan. Next month, I will discuss reasons why now is the right time to review your estate plan and what you should look for to see whether your documents are outdated and contain provisions that are unnecessary and cause a lack of flexibility for your loved ones.