Strategies for estate tax savings

Photo: Dodgerton Skillhause for Picjumbo. 

 Q: My wife and I have about $2.1 million in investments and our house is worth $750,000. What do we need to do to make sure we don’t owe estate taxes when we die?

A: We’ve got good news and bad news for you.

You won’t owe any federal estate taxes. That’s the good news.

The bad news is that you may have an estate tax liability to the state of New Jersey.

“In 2014, the federal  exemption amount is $5.34 million and a 40 percent tax rate is applied to the excess of that amount,” said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

Then there’s New Jersey, which imposes an estate tax on estates in excess of $675,000. The tax rate is between 4.2 and 16 percent for estates in excess of the $675,000 amount, Whitenack said.

“There is an unlimited marital deduction so that the surviving spouse does not have to pay an estate tax for those assets above $675,000 which he or she inherits from the first spouse to die,” Whitenack said. “The tax, however, will have to be paid at the death of the second spouse unless the couple has engaged in tax planning.”

There are a number of tax planning strategies to reduce the size of the taxable estate.

One way to reduce New Jersey estate tax liability is by making gifts, Whitenack said. New Jersey does not impose a gift tax and no federal gift tax will be imposed if the lifetime gifts are less than the federal estate tax exemption amount.

“As gifting may trigger other types of taxes such as capital gains taxes,  the couple should consult with an estate planning attorney to go over their options and determine the best tax planning strategies for them,” Whitenack said.

Email your questions to moc.p1600711549leHye1600711549noMJN1600711549@ksA1600711549.

This story was first posted in November 2014.
 
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.