Recommendation for Tax Planning now if
husband and wife’s total assets including life insurance exceeds $675,000
A New Jersey estate tax return must be filed if
the decedent's gross estate plus adjusted taxable gifts as determined in
accordance with the provisions of the Internal Revenue Code exceeds $675,000
and the assets do not go to the spouse. It must be filed within nine months of
the decedent's death.
Even if there is
no NJ Inheritance Tax there can be a NJ Estate Tax if the estate exceeds
$675,000 and the beneficiaries are children or grand children.
Who Must File
A New Jersey
estate tax return must be filed if the decedent’s Gross Estate exceeds
$675,000. There is a substantial tax that must be paid after the 2nd
spouse dies on amounts over $675,000.
You can hire an attorney to set up Trusts to try to reduce taxes due. We
charge a minimum fee of $600 for each trust within a Will. A separate stand
alone Trust has a minumum fee for $2,000.
Even if your
net worth is well below the Federal threshold where the federal estate tax
becomes an issue, the New Jersey Estate Tax may still be a problem. The New
Jersey Estate Tax affects any person or married couple with net worth over
$675,000. There is no exemption for assets you leave to your children;
those assets are fully taxed. There is also no exemption for the value of your
home and life insurance, so it is easy to hit the $675,000 threshold very
quickly.
If you
have assets such as bank accounts in joint names, or bank accounts payable upon
death, these go directly to the beneficiary. Your Will cannot change who the
beneficiary is on a joint account, payable upon death accounts, or other assets
such as Life Insurance policies. You would have to directly
contact the bank or company where the assets are held and either direct that
they change the beneficiary or not list any beneficiary at all other than your
Estate. Therefore, if you have
$1,200,000 in assets, you can change the beneficiary so the husband owns
$600,000 and the wife owns the other $600,000.
WHAT IS CREDIT SHELTER TRUST and
how can the attorney help Reduce NJ Estate Taxes?
The Credit
Shelter Trust (sometimes referred to as a “Bypass Trust” or an “A/B Trust”) is
a popular estate planning technique used by married couples with combined
assets in excess of $675,000. The purpose of the Credit Shelter Trust is to
avoid the wasting of federal and state exemptions on the death of the first
spouse. Instead of leaving all assets to the surviving spouse and thereby
exposing the surviving spouse’s estate to more tax, both spouse’s Wills are
drafted to establish a Credit Shelter Trust to come into existence and be
funded on the first spouse’s death.
In a
typical Credit Shelter Trust, the surviving spouse is entitled to receive all
of the income from the Trust for his or her lifetime, and has the right to
demand principal distributions for his or her health, education, support and
maintenance in his or her accustomed manner of living. Distributions in excess
of that standard require the cooperation of a Co-Trustee – often an adult child
of the surviving spouse or a trust department of a bank.
The
amount, which funds a typical Credit Shelter Trust, varies according to a particular
Client’s financial and family circumstances. For Federal Estate Tax purposes, a
Credit Shelter Trust can be funded with the Decedent’s remaining federal estate
tax exemption ($5.4 million as of 2015 if no prior gifts have been made).
However, in New Jersey, since the state estate tax exemption is only $675,000,
if the Credit Shelter Trust is funded with more than $675,000, this will cause
some New Jersey Estate Tax to be paid. For example, if the $2 million is
funded, the tax to the State of New Jersey is $99,600. Because of this, many
Clients choose to fund the Credit Shelter Trust with only $675,000.
If the
Credit Shelter Trust technique is implemented as part of a Client’s Estate
Plan, you can hire the attorneys for a separate fee to assist the Client in
re-titling his or her assets so that assets are available to fund the Credit
Shelter Trust. Re-titling is necessary because most Clients tend to hold assets
jointly with right of survivorship and assets must be titled individually in a
person’s name in order to be eligible to fund a Credit Shelter Trust. We work
with a tax attorney to help our clients.
Source: http://www.davidkwhitlock.com/CM/FAQ/What-Is-Credit-Shelter-Trust.asp:
Please
call this week to schedule a confidential appointment.
Examples
of NJ Estate Tax due if no estate planning
Estate of
$800,000
Your
Federal Estate Tax: 0.00
Your
State Taxable Estate Value: $740,000.00
Your
Estimated State Estate Tax: $22,799.60
If Estate
Value: $900,000.00 Your State Taxable Estate Value: $840,000.00 Your Estimated State Estate
Tax: $27,600.00
If
Estate Value: $1,000,000.00 Your State Taxable Estate Value: $940,000.00 Your Estimated State Estate
Tax: $33,200.00
If Estate Value: $1,100,000.00 Your State Taxable Estate Value: $1,040,000.00 Your Estimated State Estate
Tax: $38,800.00
If Estate
Value: $1,200,000.00 Your State
Taxable Estate Value: $1,140,000.00 Your
Estimated State Estate Tax:
$45,200.00
If
Estate Value: $1,300,000.00 Your State Taxable Estate Value: $1,240,000.00 Your Estimated State Estate
Tax: $51,600.00
We recommend tax planning when the
husband and wife own over $700,000 in assets.
When an Estate Tax Return Is
Required
The value of your gross estate is calculated by adding up all of
the assets you own at death, including:
Real estate in New Jersey
Bank accounts and certificates of
deposit, even if payable upon death
Investment accounts and securities
Vehicles and other items of
personal property
Proceeds
from insurance policies on your life, unless you didn’t own the policy
Retirement account funds
Small business interests (sole
proprietorship, limited liability company, or small corporation)
It doesn’t matter, for tax purposes, whether or not any of
your assets go through probate at your death. Real estate in a living trust, a
retirement account for which you’ve named a beneficiary, a jointly owned bank
account—it all gets counted.
Some other less obvious assets
are also included:
-taxable gifts you made during
life (more than the federal gift tax annual exclusion amount, currently $13,000
per year per recipient).
More information on Estate Tax is
available on our website www.njlaws.com.
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