New Jersey Estate Tax Update

There has been a lot of talk in the halls of the New Jersey Legislature about repealing or modifying the New Jersey estate tax.  New Jersey is one of two states that has two, discrete death taxes—an estate tax and an inheritance tax.

The New Jersey inheritance tax is a tax assessed primarily on the relationship between the decedent and the beneficiary.  The New Jersey estate tax is a tax assessed against the gross value of the estate.  If the gross value of the estate exceeds $675,000, then the state of New Jersey imposes an estate tax against the estate.

There has been a considerable amount of talk about eliminating or modifying the estate tax.  Some proposals call for a complete elimination of the tax.  Other proposals call for increasing the credit equivalent against the estate tax, the $675,000 threshold.

The federal government imposes an estate tax, too, that is distinct from New Jersey’s estate tax.  An estate could pay estate tax to the state of New Jersey and to the federal government; however, in order to do that, that estate would have to exceed $5,450,000 because the federal government offers a credit equivalent of $5,450,000 against its estate tax.

Given the high threshold for federal estate tax, it is no wonder that one proposal to modify New Jersey’s estate tax calls for increasing our state’s credit to $5,450,000 in the near future.  If our credit were increased to $5,450,000, there would be very few estates (in fact, hardly any) that would ever pay estate tax.

The fact of the matter is, while we all hope we could be worth $5,450,000, very few of us are or ever will be. Furthermore, a married couple can shelter two times $5,450,000 (or $10,900,000) be simply checking a box on an estate tax return.

The revenues that the State receives from the imposition of the current New Jersey estate tax is about 3% of all revenue that the State receives.  You can bet that the State is not going to trim 3% off its budget if our estate tax is repealed or modified in such a manner that hardly any estates pay the estate tax.

Now, I hate taxes.  But I also realize that the government needs taxes to pay for the services it provides (police, fireman, roads, bridges, military, etc.).  So, if the government losses a major source of revenue, I have to ask, from where is New Jersey going to get the money it lost from repealing the estate tax?

The primary argument against the estate tax is that income-tax paying residents of New Jersey are fleeing New Jersey in order to avoid the estate tax and New Jersey is losing out on the income taxes those residents would have paid.  I have heard this contention numerous times now, and because I hate it when people try and sell bull to the public, I feel compelled to address this issue again.

I have practiced elder law for almost 20 years.  I have met with over ten thousand people about estate issues.  In all my meetings, perhaps one or two people have expressed a willingness to change their residence in order to avoid estate tax.  In fact, I have found that when people who already live in another state for several months every year (typically Florida) are presented with the choice of changing residence to avoid the estate tax, they refuse to make the change.

I have had numerous clients tell me that they weren’t concerned with the estate tax at all, that the tax was their children’s problem, not theirs, since it’s only imposed after their death.  People relocated to states such as Florida because of warmer climates and lower cost of living in retirement, not because of estate tax.  Eliminating the estate tax does nothing to lower an individual’s cost of living.

Also, in order to eliminate the estate tax, the Legislature is proposing a regressive tax.  They want to increase the gas tax by 23 cents per gallon.  The estate tax actually affects very few estates in New Jersey.  The gas tax increase will affect almost every resident of New Jersey, every day of their lives.