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Sunday, November 15, 2015

Recommendation for Tax Planning now if husband and wife’s total assets including life insurance exceeds $675,000

 NJ Estate Tax for Estates over $675,000
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.