Estate Planning is for EveryoneBy: Kimberly A. Paton(1996)
At the time of your death, your estate may be required to pay several levels of state and federal taxes that could reduce your estate significantly, sometimes by as much as 50% or more. Luckily, with proper planning while you are alive, you can minimize and in some cases eliminate all of these taxes.
FEDERAL ESTATE TAXThe federal estate tax is imposed upon the taxable estate of every person who is a citizen or resident of the United States at the time of his or her death. The taxable estate is the gross estate reduced by allowable deductions. Generally, the gross estate consists of all the property held by the person at the time of his or her death and may also include certain property which the person transferred while he or she was alive. The federal estate tax rates applicable to the taxable estates vary from a low of 18% up to a maximum of 60%. However, every person may transfer up to $600,000 at the time of his or her death free from federal estate tax. Accordingly, married couples can use this credit to effectively shield $1,200,000 with proper planning. NEW JERSEY INHERITANCE AND ESTATE TAXATION- Transfer Inheritance Tax.
The State of New Jersey imposes a transfer inheritance tax on the transfer of all real or personal property valued at $500 or more, or on any interest in or income from such property, to or for the use of any transferee, distributee or beneficiary specified in the statute. However, New Jersey exempts certain transfers from its transfer inheritance tax. For example, the transfer of property to a surviving spouse or the decedent's children are not subject to the transfer inheritance tax. The transfer inheritance tax is levied against the transferee. The rate of the tax is determined by the value of the property received and the relationship of the transferee to the decedent. - New Jersey Estate Tax.
In addition to the transfer inheritance tax, New Jersey imposes an estate tax on the estate of every resident decedent that is generally in excess of $600,000. The type of tax imposed is often referred to as a "pickup" or "sponge" tax, because it is designed to recover the differential between state taxes paid and the credit for such taxes allowed by the Internal Revenue Code. This means that the New Jersey estate tax will not result in any additional taxes upon any particular estate. It merely transfers taxes that would otherwise have been paid to the federal government to the State of New Jersey.
IMPORTANCE OF ESTATE PLANNINGFormulating an estate plan that minimizes tax liability may be the most difficult and challenging aspect of the estate planning process. The importance of tax planning increases with the size of the estate, and usually becomes the primary consideration for very large estates. As a result of the effects of inflation, particularly on real property, a far greater number of estates now face potential tax liability. There are many estate planning tools that may be available to you beyond the $600,000 exemption discussed above. For example, an insurance trust is oftentimes used to compensate for the reduction in the estate due to death taxes in the event that your estate is above the $600,000 exemption. What some people do not always realize is that estate planning is important even if your estate is within the exemption limits. For example, if you are married, careful planning is required so that both spouses are able to use their exemption. It does not happen automatically. Kimberly A. Paton is Chairperson of WJ&L, LLP's Estate Planning, Probate and Elder Law Department Back to Legal Update Main Page | 
