WHAT’S UP WITH NJ ESTATE TAX?

Recent reports out of Trenton suggest that the evolution of the New Jersey estate tax — thought to be complete in January 2018 with the full repeal of the tax — may face further developments. Revelations that the repeal has resulted in a higher drop in state revenue than anticipated have led to calls for reinstatement of the estate tax in some form. The uncertain future of the New Jersey estate tax adds an additional layer of complexity to the estate planning process.

NJ ESTATE TAX ELIMINATED IN 2018

For many years, the estate tax exemption in New Jersey was relatively low. An estate tax was imposed on individuals with net assets in excess of $675,000 at death. Many residents sought to avoid the hit by establishing domicile in a more tax-friendly state, such as Florida, which had the accompanying result of impacting New Jersey’s income tax collections. In 2016, then-Governor Chris Christie and Republican lawmakers introduced a law to phase-out the estate tax. In 2017, the estate tax exemption was increased to $2 million and in 2018 it was eliminated altogether.

IS IT COMING BACK?

While New Jersey still has an inheritance tax which is imposed when someone other than an immediate family member (parent, spouse, child or grandchild) or charity receives an inheritance, lawmakers knew that the fiscal hit would be significant. News issued recently by the Department of Treasury reveals that the hit has been harder and more precipitous than initially believed, however. Analysts predict that estate and inheritance tax collections for 2018 will decline more than $100 million, in large part because of the 2017 bump in the estate tax exemption and the complete elimination of the tax in 2018.

FLEXIBILITY IN YOUR ESTATE PLAN IS ESSENTIAL

Calls for restoration of the estate tax have been coming fast and furious. Whether it will come back and, if it does, whether it will be restored at the $2 million exemption amount or less, remains to be seen. Regardless, it is critical that individuals and families in the process of updating or creating an estate plan include flexibility in their Will to account for the variety of scenarios that may come to fruition. Consultation with a knowledgeable and thoughtful estate planning attorney with experience in New Jersey’s estate tax is an essential part of this process. The attorneys at Phelan, Frantz & Peek are all mindful of this possibility when we discuss planning with our clients.