Should I change my trust?

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Q. I read with great interest your article on estate planning now that New Jersey is eliminating the estate tax. We have the exact trusts you mention as we have nieces in our estate plan. How does all this affect the inheritance tax that is still out there? Should we keep the trust if it will save them inheritance taxes?
— Planning

A. Although New Jersey has now scheduled the estate tax for repeal, the state’s inheritance tax currently remains unchanged and in place.

The inheritance tax creates a tax liability based on the relationship between the decedent and the recipient of assets from the decedent, said Frederick Schoenbrodt, estate planning attorney with Bressler Amery Ross in Florham Park.

He said nieces and nephews are members of the most heavily taxed class of beneficiaries — Class D beneficiaries — under the inheritance tax law.

“Generally speaking, a distribution to a Class D beneficiary will be taxed at 15 percent on the first $700,000 and 16 percent on anything over $700,000,” Schoenbrodt said. “It seems likely that the legislature will revise, or at least revisit, the inheritance tax in light of the dramatic changes to the estate tax, but the timing or result of any such review is uncertain, if one occurs at all.”

Schoenbrodt said the use of credit shelter trusts in an estate plan has traditionally served as an estate tax planning tool, not a tool to reduce inheritance tax liability.

The inclusion of these trusts is unlikely to save inheritance taxes and in fact, if your nieces are remainder beneficiaries of these trusts, the use of these trusts could create an inheritance tax liability on the first spouse’s death, he said.

“The specific exposure of your estate to inheritance tax will depend on how the gifts to your nieces are structured and whether they are beneficiaries of a separate specific gift or beneficiaries of any trusts that you established under your wills,” he said.

Your estate plan has sufficient variables that a review of your current estate plan by a knowledgeable trust and estate advisor would be a very good idea.

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This post was first published in December 2016. 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.