06 May Florida to NJ? A costly estate move

Q. My aunt is ill and lives in Florida. I want her to move to NJ so I can help her, but she says estate taxes are too high here. Is that true, and is there anything she can do?
— Nephew

A. Your aunt is correct.

New Jersey is a much more expensive place to die when it comes to estate taxes.

While Florida does not impose estate or inheritance tax upon the estates of Florida residents, only $675,000 is exempt from New Jersey estate tax, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

Then, Whitenack said, New Jersey has a separate inheritance tax that is imposed on property passing to anyone other than a spouse, parents or lineal descendants (children, grandchildren, and step-children but not step-grandchildren), referred to as Class “A” Beneficiaries, or a charity, referred to as Class “E” Beneficiaries.

Nieces and nephews are Class “D” beneficiaries. The tax rates for Class “C” and Class “D” beneficiaries range from 11 to 16 percent, she said. Note there are no Class “B” beneficiaries.

New Jersey does not impose a gift tax.

Depending on your aunt’s assets and income, it may be possible for her to engage in planning strategies to reduce estate and inheritance tax liabilities, Whitenack said.

For example, she may be able to gift some assets now to avoid having those assets included in her taxable estate.

However, the inheritance tax (but not the estate tax) is subject to a rule that gifts made in contemplation of death are “clawed” back into the estate and will be included in calculating the inheritance tax, Whitenack said.

Plus, if your aunt lives in New Jersey and makes a transfer without adequate consideration of a material portion of your aunt’s estate within three years of death, then estate will have the burden of proving that the gift was not “in contemplation of death,” Whitenack said.

As your aunt is ill, this rule should be considered prior to making gifts, she said.

“Furthermore, such gifts can adversely impact the aunt’s ability to access Medicaid benefits that may be needed to pay for long term care if she gives assets away,” Whitenack said.

Your aunt should consult with an estate planning or elder law attorney in New Jersey prior to moving here.

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This post was first published in May 2016.