29 Apr Will our children owe taxes on inheritances when we die?

Q. I have three children from a previous marriage. I have been remarried now to the same partner for 29 years. In our wills, if my husband dies, the home is left to me then to my children. If I pass first, the house goes to my husband and upon his death, to my children. He has no other living relations. The home is in both of our names. What New Jersey tax obligations do my children have if the home and other assets come to them after they inherit from my husband upon his death?
— Planning

A. We’re glad to see you’re planning ahead.

While your question focuses on ramifications to your children and not your husband’s estate, there is some pertinent information to note regarding potential estate taxes upon your husband’s passing.

At the moment, the federal estate and gift tax exemption is $13.61 million per individual, said Christine Melilli, a certified public accountant with Smolin, Lupin & Co. in Red Bank.

However, she said, the current law is set to sunset on Dec. 31, 2025, unless Congress extends it or makes it permanent. If Congress does nothing, the exemption amount will revert to its levels before the Tax Cut and Jobs Act of 2017.

That would be $5.6 million per individual.

Melilli said New Jersey does not have an estate tax, but it does impose an inheritance tax on certain classes of beneficiaries.

“Since you are legally married to your spouse, your children become his step-children, whereby making them Class `A’ beneficiaries for purposes of the New Jersey Transfer Inheritance Tax,” she said. “Class `A’ beneficiaries are exempt from the New Jersey Transfer Inheritance Tax.”

Moreover, she said, your children will inherit the home at its fair market value as of the date of your husband’s passing, presumably reducing or eliminating any potential gain on the sale of the home subject to federal and/or state income taxes.

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This story was originally published in April 2024.

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.