There’s good news and bad news for residents of the Garden State. The good news is that the state is ready to bid farewell to the state estate tax. The bad news is, the inheritance tax is sticking around.
Many residents of New Jersey decide to leave the state because of the estate tax, according to NJ 101.5 in “Changes for the NJ Estate Tax.” But there will soon be at least one good reason to stay.
The reason for the high number of 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.
A statistic presented from data by New Jersey Policy Perspective 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, which can range from 11 to 16% of the inheritance received.
If you have a spouse and children who will inherit assets when you pass and you are an “average” New Jersey resident, the inheritance tax should not be of concern as they will not have to pay any estate tax. But, if you have no Class A beneficiaries, they will have to pay the inheritance tax when you pass away.
Reference: NJ 101.5 (October 12, 2016) “Changes for the NJ Estate Tax”