A large percentage of people do not have a last will and testament. If you are included in that group, you should get a Will. Of those who do have Wills, many put their Will in a secure location and never review it again. If you are in the latter camp, you might want to take your Will out and give it a quick review. Recent changes to tax laws may make your current Will outdated.
Until this year, an estate with a gross value greater than $675,000 was subject to New Jersey estate tax. With recent changes in the tax laws, your estate now has to exceed $2,000,000 to be subject to New Jersey estate tax. In 2018, the New Jersey estate tax is completely repealed, so New Jersey will no longer impose an estate tax.
With the repeal of the New Jersey estate tax, the general revenue fund of New Jersey lost about $400,000,000 annually. It is unknown from where New Jersey will make up these lost funds. Perhaps, the State will substantially cut programs in order to make up for the deficit.
Because the repeal of the New Jersey estate tax causes such a large deficit in the State’s budget, some people believe that New Jersey might re-instate the estate tax. Perhaps, New Jersey will freeze the credit equivalent at $2,000,000 instead of repealing the tax.
Given this concern, how do you plan for these changing times? Furthermore, if your estate plan was designed to shelter your estate from New Jersey estate tax as that tax existed in the past, should you review your estate plan to ensure that it conforms to the current law?
In general, you should review your estate plan to ensure that it conforms to existing law every ten years. Specifically, if your prior estate plan was designed to assist with estate taxes (either state or federal) and you haven’t reviewed your plan in the last year, I’d review it now.
Many married couples have estate plans designed specifically to address the federal estate tax or the New Jersey estate tax as those laws existed in the past. Now, with the changes to the laws, these older plans need to be modified.
If your estate is under $2,000,000, then you probably don’t have to worry about estate tax. So, if your Wills were designed to address estate tax and your estate is worth less than $2,000,000, then you might want to think about removing any old tax planning provisions that you currently have in your Will.
If you are a married couple and your combined estate is $2,000,000 or more, then you might want to think about having a disclaimer credit shelter trust in your Wills. A credit shelter trust is a trust that is designed to take advantage of the husband’s $2,000,000 credit against New Jersey estate tax and the wife’s $2,000,000 credit against the New Jersey estate tax. Properly implemented, a credit shelter trust could permit a married couple to shelter $4,000,000 from the New Jersey estate tax.
A disclaimer credit shelter trust would read as follows: “I give my estate to my spouse; however, if my spouse disclaims a portion of my estate, then the portion so disclaimed shall pass to a credit shelter trust for my spouse’s benefit of which my spouse is the trustee.” A disclaimer is a legal way for a beneficiary (the surviving spouse in this case) to say they don’t want something passing to them under a Will. Yet, with a disclaimer credit shelter trust, the property disclaimed simply passes into a trust for the benefit of the surviving spouse.
This type of planning allows your estate plan to be very simple (an outright inheritance to the surviving spouse), yet preserves estate tax planning if that planning is beneficial at the time of the first spouse’s death (permitting the funding of a credit shelter trust through the use of a disclaimer). Many plans either don’t have this flexibility or are tied to the old federal and state estate tax laws, failing to take into consideration the changes that have occurred in the tax laws.