Recently, the New Jersey estate tax was modified. Prior to 2017, an estate with a gross value greater than $675,000 was potentially subject to New Jersey estate tax.  After January 1, 2017, the gross estate must be in excess of $2,000,000 in order to be subject to New Jersey estate tax.  Starting on January 1, 2018, the New Jersey estate tax will be completely repealed.

The federal estate tax will (for now) continue.  Currently, a gross estate must be in excess of $5,490,000 to be subject to federal estate tax.  In addition, there has been no change in New Jersey’s inheritance tax.  If any portion of an estate is left to an individual who is not the spouse, parent, child, or grandchild of the decedent, then the estate may be subject to New Jersey inheritance tax.

For years, clients of mine (and I’m sure clients of many other attorneys) planned for the New Jersey estate tax.  A common planning technique was to draft trusts into the Wills of a married couple.  These trusts were called credit shelter trusts or by-pass trusts.  The trusts were designed to take advantage of each spouse’s credit against the estate tax.

The trust would be drafted into each spouse’s Will, because you never know which spouse is going to die first.  When the first spouse dies, an amount up to the credit (for instance, $675,000) would pass into the trust.  The surviving spouse would typically be the trustee of the trust.

With credit shelter trusts, a married couple could shelter twice the $675,000 credit against New Jersey estate tax, or $1,350,000.  If a married couple currently had credit shelter trusts in their Wills, then they could shelter $4,000,000, or twice the $2,000,000 credit that currently exists.

Most of my clients who planned for the New Jersey estate tax had estates worth between $900,000 and $1,500,000.  In fact, I would say that 90% to 95% of the clients who I helped with estate tax planning owned estates in this range.

For those clients, estate tax planning with credit shelter trusts is no longer necessary.  While New Jersey may change the law before the tax is repealed in a few months or the State may lower the credit from $2,000,000, for now, most of my clients who engaged in tax planning no longer need to engage in this type of planning.

For those married clients of mine who did engage in tax planning, I would recommend that they re-visit their estate plans.  While a credit shelter trust is not harmful, it may be an unnecessary part of the client’s estate plan given the change in the law.

I have found that clients like a simple estate plan unless there is a reason to have a more complex plan.  For instance, if you can save $70,000 in New Jersey estate tax with a trust, then a trust makes sense.  But if a trust designed to save taxes no longer is necessary to accomplish that goal, then I don’t believe the client should have that type of trust.

There may be other reasons for a trust.  In the recent past, I have become a believer in establishing trusts to hold the inheritance of a client’s child, called a “bloodline trust.”  Since recent changes in the law make it clear that a child can serve as the trustee of his own trust and the trust can protect the assets from the creditors of the child, I believe that bloodline trusts are useful estate planning tools.

But a bloodline trust is not a credit shelter trust, so a client who has a credit shelter trust with an estate less than $2,000,000, probably would want to modify his estate plan.  A married couple who has an estate worth $1,500,000 could have simple Wills that simply leave the entire estate to the surviving spouse, then the children.