On October 7, 2016, the New Jersey Legislature voted to pass a bill which will eliminate the state’s estate tax. Governor Christie signed the bill into law on October 14, 2016.
The bill phases out the estate tax over two years, by raising the exclusion amount to $2 million for decedents dying on or after January 1, 2017, and eliminating the estate tax altogether for decedents dying on or after January 1, 2018. Currently, New Jersey provides an estate tax exclusion amount of only $675,000, meaning that generally a decedent’s estate which passes to a non-spouse may be subject to New Jersey estate tax when the decedent’s gross estate, plus adjusted taxable gifts, exceeds $675,000.
While the new law will free many families from the need to pay tax on the death of a loved one, the New Jersey Inheritance Tax is not being eliminated. The estates of decedents who bequeath property to individuals other than spouses, children, grandchildren and great-grandchildren (all of whom are exempt beneficiaries) may still incur significant taxes. Currently, bequests to siblings or spouses of children which exceed $25,000 are taxable at rates ranging from 11% to 16%, and bequests of more than $500 to all other non-exempt beneficiaries are taxed at rates between 15% and 16%.
All existing wills and revocable trusts of New Jersey residents should be reviewed to determine whether changes are necessary. While those documents containing a “disclaimer” plan will generally not be impacted, wills and trusts that create “credit shelter” or “family” trusts may well contain estate tax-oriented formulas that could have the unintended consequence of reducing (or even eliminating) bequests to the surviving spouse under the new law.
In addition, the bill decreases New Jersey’s sales tax from its current rate of 7% to 6.625% over the next two years, increases the New Jersey gross income tax exclusion on retirement and pension income over four years to $100,000 for joint filers, $75,000 for individuals and $50,000 for married/filing separately, increases the state Earned Income Tax Credit to 35% of the federal credit, and extends a new $3,000 income tax exemption to New Jersey veterans who are honorably discharged from active service in the military or National Guard. The bill also imposes a 23-cent per gallon increase in the gas tax.