“Now that the [NJ] estate tax is being phased out, what is meant that it benefits the top 4 percent?”
New Jersey’s estate tax is a big reason why many people decide to leave the state, says NJ 101.5 in a recent post “Changes for the NJ Estate Tax.”
The reason for many departures is simple: while the federal government has increased its estate tax exemption to more than $5 million, the state of New Jersey has remained at $675,000. This has resulted in anyone dying with assets worth more than $675,000 being subject to estate tax. While that may sound like a lot of money, if you own even a modest home in the northern part of the Garden State, experts say you’ll likely hit the $675,000 threshold pretty easily.
The 4 percent statistic is from data by New Jersey Policy Perspective. It explains that about 4% of estates in New Jersey pay the tax. In the last three years, fewer than 100 estates paid 41% of all estate taxes paid in the state.
But now, the estate tax in New Jersey is changing as part of the bill that raised the gas tax in the state. When signed, the exemption will increase to $2 million for estates of those who die in 2017, and then the state estate tax will be eliminated for anyone who dies on or after January 1, 2018. The estate tax is a graduated tax—higher valued estates pay more in taxes. With average home values in New Jersey so high and the exemption amount so low, many moderately-sized estates have faced an estate tax bill.
But wait. There’s more.
New Jersey has a second “death” tax. It’s the inheritance tax, which is assessed based on the relationship of the heirs to the person who passed away. Class A beneficiaries, such as spouses, parents and grandparents, children, and grandchildren, aren’t subject to inheritance tax. But more distant relatives and non-relatives will still have that tax. It can be anywhere from 11 to 16% of the inheritance received.
For the average New Jersey resident, if you have a spouse and/or children who’ll be the recipients of your estate when you die, the inheritance tax will not be a concern. The estate will soon owe no estate tax or inheritance tax.
Reference: NJ 101.5 (October 12, 2016) “Changes for the NJ Estate Tax”