The New Jersey estate tax will soon be a thing of the past.  Currently, New Jersey imposes an estate tax on estates that have a gross value in excess of $675,000.  On the amount in excess of $675,000, the State imposes a tax of approximately 10%.

New Jersey also has an inheritance tax.  The inheritance tax is a tax imposed primarily based upon the relationship of the beneficiary to the decedent.  Close relatives—such as a spouse, a parent, a child, or a grandchild—do not pay inheritance tax.  More distant relatives and non-relatives pay a tax that ranges from 11% to 15% of the value of the inheritance.

There is also a federal estate tax.  The federal estate tax is imposed upon the value of an estate in excess of $5,450,000.  A couple can easily shelter twice that amount simply by checking a box on a federal estate tax return.  Since most people aren’t worth $5,450,000, and never will be, most people will never pay federal estate tax.

Our governor and legislature have recently reached a deal that will quickly put an end to the New Jersey estate tax.  By January 1, 2017, the credit against the New Jersey estate tax will increase from $675,000 to $2,000,000.  By January 1, 2018, the New Jersey estate tax will be eliminated.  Since most people don’t have an estate worth $2,000,000, the New Jersey estate tax will essentially be eliminated in a few short months for most New Jersey residents.

Many people have been planning to reduce or eliminate their exposure to the New Jersey estate tax for many years.  Many of those people have drafted their Wills in a manner that includes trusts, called credit shelter trusts or by-pass trusts or A/B trusts.  Irrespective of the name given to the trust, the trusts were designed for the same purpose.  These trusts were designed to ensure that a married couple could take advantage of each spouse’s $675,000 credit against the New Jersey estate tax, effectively sheltering $1,350,000 from estate tax for a married couple.

I have drafted hundreds of Wills containing these trusts, and until a few days ago, those trusts were completely appropriate.  Now, with the simple change of a law, all of those Wills have become dated.  While Wills that contain credit shelter trusts aren’t harmful and are perfectly valid Wills, those Wills also are overly complex and, as of a few days ago, contain unnecessary language.  Wills with these trusts could make the process of estate administration more burdensome and, now that there is no estate tax, unnecessarily so.

So, this article is a call to action to all of those people who have trusts in their Wills that were designed to reduce or eliminate the New Jersey estate tax.  If your estate is less than $2,000,000 (and in fifteen months, if it is less than $5,450,000), I would suggest that you modify your Will.

The good news is, your Wills can be much more simple.  Now, even if your estate is worth several million dollars, you can have a very simple Will that leaves everything to your spouse or everything to your children and there will be no negative estate tax issues.

The elimination of the New Jersey estate tax also opens up the opportunity for people who might have wanted to plan for long-term care to plan for long-term care.  In the past, a couple who had an estate worth $1,200,000, for instance, might not be a couple for whom I would recommend planning for long-term care.

That is because such a couple might lose tax planning opportunities by implementing certain Medicaid planning techniques.  Now, without an estate tax to worry about or to hamper their planning, such a couple can freely plan for future Medicaid eligibility without hurting their beneficiaries from a tax perspective.  With every change in the law comes new planning opportunities.