On Friday October 14, 2016, Governor Christie signed into law a comprehensive tax package with important tax cuts including the phasing out of the New Jersey estate tax. Specific to the estate tax, the legislation provides that the current $675,000 exemption from state estate tax will be increased to $2 million on January 1, 2017, and on January 1, 2018, the New Jersey estate tax will be completely eliminated. It is crucial to note that the inheritance tax (a tax on bequests to non-lineal descendants, i.e. individuals who are not children, grandchildren and their descendants) remains intact.
The other New Jersey estate tax breaks are as follows:
1. Over four years beginning on January 1, 2017, the current exclusions from income tax on retirement income increase from
a. $20,000 to $100,000 for joint filers;
b. $15,000 to $75,000 for individuals;
c. $10,000 to $50,000 for married couples who file separately.
2. The state sales tax decreases from the present 7% to 6.875% in 2017 and then to 6.625% in 2018.
3. The earned income tax credit, which is available to the working poor, will increase from 30% to 35% of the federal credit.
4. Veterans who were honorably discharged from service will receive a personal exemption from income tax equal to $3,000.
The quid pro quo for these tax cuts is a 23 cents per gallon increase in the gasoline tax.
The repeal of the New Jersey estate tax could ease the anxiety of long-time New Jersey residents who have contemplated moving out of state because they want to preserve an inheritance for their children. The new legislation significantly increases the amount of wealth that will be shielded from estate taxation in 2017 and by January 1, 2018, the New Jersey estate tax will be eliminated.
Accordingly, we would encourage all individuals to review their estate planning, including their wills and trusts, with their attorneys in light of these significant changes. If you do not have an estate plan, now is the time to schedule a consultation with an estate attorney to formulate a plan. For clients who have had trusts set up, a review with an attorney is recommended to find out if your current plan has sufficient flexibility in an environment of no New Jersey estate tax.