Q. Do you think New Jersey will get rid of the inheritance tax? It seems so unfair and I only have nephews and not children. Why should they have to pay to get my money?
A. The inheritance tax has never been a favorite of New Jerseyans.
Let’s take a closer look at that tax, and also the estate tax.
Fifteen states currently have an estate tax, while six states currently have an inheritance tax.
Only two states – Maryland and New Jersey — have both, said Richard Miller, an attorney and chair of the elder law department at Mandelbaum Salsburg in Roseland.
On Jan. 1, 2018, New Jersey will be able to cross its name off this short list, leaving Maryland with the distinction of being one of the most expensive places to die, Miller said.
Estates in excess of $2 million are subject to New Jersey estate tax in 2017, unless the assets pass to a spouse or domestic partner. The tax is scheduled to be eliminated as of Jan. 1, 2018.
It is unclear, however, whether the elimination of the estate tax will be permanent or revisited by the next administration depending on the outcome of the gubernatorial election, Miller said.
“Phil Murphy has publicly expressed disapproval of eliminating the estate tax, stating, `to provide a nearly $500 million tax break to 4,000 wealthy New Jersey families ensures that the middle class, again, is left holding the bag. The windfall for the very wealthy entirely overwhelms any benefit to the middle class and those who aspire to the middle class,’” Miller said, quoting Murphy.
Kim Guadagno has not taken a formal position on estate taxes, Miller said, but she has criticized her opponent’s statement about revisiting the elimination of the tax.
“As a result, the outcome of the gubernatorial and legislative elections in November may significantly impact whether the New Jersey estate tax is gone for good,” Miller said.
But in the meantime, the New Jersey inheritance tax is alive and well with no known plans for elimination or modification, Miller said.
The inheritance tax is not based on the size of the estate, but on who receives the estate, he said.
There is no inheritance tax imposed on transfers to a parent, grandparent, spouse, domestic partner, child or step-child (Class “A” beneficiaries). Inheritance tax is imposed on transfers to siblings (Class “C” beneficiaries). The first $25,000 passing to each sibling is exempt from tax, and thereafter, the tax rate is between 11 and 12 percent. Inheritance tax is also imposed on nieces, nephews, friends and others (Class “D” beneficiaries) at a rate between 15 and 16 percent.
“The fairness of this or any other tax is in the eye of the beholder,” Miller said. “What appears to be clear, however, is that New Jersey will likely remain on the short list of one of the most expensive places to die.”
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