New Jersey and Estate Tax – Will They or Won’t They?

Posted on: April 30th, 2018 by Mark R. Friedman

For a while now, New Jersey estate planners have been playing a guessing game.

Guessing whether New Jersey will bring back the estate tax.

The estate tax is a tax that your estate pays when you pass away. In the past, anyone who died in New Jersey and left behind an estate valued at more than $675,000 had to pay the estate tax (with some work-arounds like leaving property to a spouse or charity).

From the State’s perspective, the estate tax was good, because it brought in much-needed revenue to pay for schools, roads, police, etc. And back when New Jersey’s estate tax was created, this sort of tax was common among states.

But in the years since then, many other states raised their thresholds significantly, or eliminated estate tax altogether. New York’s estate tax threshold was $1 million, which was then raised to over $5 million. Many of New Jersey’s other neighbors have no estate tax. And many older New Jerseyans are moving to states like Florida that have lower taxes in general.

When residents leave New Jersey for lower tax states, the State loses revenue. So it’s a balance – taxes generate revenue, but if they drive residents away, the State ultimately loses revenue.

I think the tipping point may have come a few years ago when David Tepper, a wealthy hedge fund manager, moved from New Jersey to Florida.  Mr. Tepper was New Jersey’s wealthiest resident, and he reportedly owned property in both New Jersey and Florida, so he simply changed his residency to Florida.  Reportedly when he did so, New Jersey lost hundreds of millions of dollars in lost taxes.

In 2016, New Jersey passed a tax reform bill that changed the gas tax, sales tax, and estate tax. The gas tax was increased, sales tax decreased, and estate tax decreased and eventually eliminated.

In 2017, the estate tax threshold in New Jersey was raised from $675,000 to $2 million. And in 2018, the New Jersey estate tax was eliminated.

As of this writing, if you die a resident of New Jersey, you don’t have to pay New Jersey estate tax, no matter the value of your estate.

That said, the estate tax reform was enacted under our previous governor, Chris Christie. We have a new governor now, Phil Murphy, who has proposed increased funding for a number of measures, particularly schools.

This comes on top of a state budget that is already strained, with increasing pension obligations that pose fiscal peril.

In short, the state needs more revenue. So some professionals who work in this area think that the estate tax will come back in the near to mid future. Governor Murphy has said he intends to leave the estate tax eliminated, but if we face a true budget crisis, who can predict what will happen.

For our part, we try to do estate planning both for now, and for the future. If we think a client may have a valuable estate in the future, we sometimes recommend including provisions in the will that could save New Jersey estate tax, if it comes back. One example is a credit shelter trust, which allows a married couple to take advantage of both spouses’ estate tax exemptions when passing assets to their children.

When we write wills, we try to give our clients options that don’t have any negative effects, but can decrease their taxes in the future if New Jersey does bring back the estate tax.

If you would like to find out more about creating a will, please call or email FriedmanLaw.

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Homepage photo: Cows grazing at Meadowbrook Farm, Bernardsville, NJ by Siddharth Mallya. October 23, 2012.
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