The Garden State. Home to Bruce Springsteen, Jon Stewart, Chris Christie and who can forget—Xanadu. Many of us have come from far and away to live in this wonderful place we call New Jersey. But with all of the beauty that surrounds us, we forget that there are disadvantages (other than snow) to living here. Perhaps one of the most important disadvantages is the dreaded New Jersey estate tax.
Before we delve into New Jersey’s wonderful estate tax regime, you might be wondering: What is estate tax? This question is best answered by a famous joke. There was once a man who hated his family. On his deathbed he made his wife promise to him that she would bury him with all of his money. At the time he had $100,000 in the bank. The man soon died.
At his funeral his wife’s best friend asked, “You didn’t really fulfill your husband’s last wishes about his money, did you?”
The man’s wife was outraged. “Of course I did! He was my husband! I would never leave his last wishes unfulfilled.”
The friend asked, “How did you do it?”
The wife responded, “I wrote him a check!”
The point of the joke is that you can’t take any of your assets with you as you move to Olam Haba. And if assets are going to be passed from one generation to the next, the government is going to make sure it gets a piece of the action.
Enter estate tax. Estate tax (also known as a death tax) is the tax that the government puts on the transfer of an estate of someone who dies (known as the decedent) as those assets get transferred to the people lucky enough to receive them (also known as beneficiaries).
We begin with the federal estate tax. Currently, the IRS will tax any estate with assets over $5,430,000. For a husband and wife that number doubles (i.e., $10,860,000). This means that after a husband and wife die (assuming they died recently), their children will have to pay estate taxes to the IRS for anything over $10,860,000 at a 40 percent rate.
Luckily, or perhaps unluckily, most of us will not have to worry about federal estate tax right now. I use the words “right now” specifically because laws change all the time. But “right now,” only 0.2 percent of estates are subject to the federal estate tax.
But, just in case you thought you were in the clear, you live in the great state of New Jersey which imposes an estate tax on estates over $675,000, with a rate as high as 16 percent. For a husband and wife that number can be doubled to $1,350,000, assuming they plan well and have wills. The answer to the question you were going to ask is YES—New Jersey has the worst state estate tax in the country.
There is good news. Any assets in excess of $675,000 that pass between legally married spouses, who are American citizens, are entitled to the marital deduction, which means there is no estate tax on transfers between spouses. And there are New Jersey legislators who are trying to repeal the estate tax. But as long as New Jersey receives $700 million from estate and inheritance taxes every year, it would take a powerful prayer to repeal the New Jersey estate tax. Let’s daven hard this Elul.
Alec Borenstein, Esq., an estate-planning attorney, is a Teaneck resident with offices in Springfield and Brooklyn. His firm’s website is bmcestateplanning.com.
By Alec Borenstein
