Big Changes for New Jersey Estate Tax

 R.I.P. New Jersey Estate Tax: 1934 – 2017

You may have seen various news stories concerning the State’s recent dilemma with funding the Transportation Trust Fund. The Legislature has passed, and the Governor has signed, two laws that provide a funding mechanism for the Transportation Trust Fund by increasing the gasoline tax, while reducing various other taxes, such as the Sales and Use Tax.

Of importance to us are provisions in one law (P.L. 2016 c. 57) that alter the New Jersey Estate Tax. Effective on January 1, 2017 and for the remainder of the 2017 calendar year (i.e., for decedents dying between January 1, 2017 and December 31, 2017, inclusive of these dates), the rate of the New Jersey Estate Tax is reduced, and the threshold for estates subject to the tax is increased from $675,000.00 to the 2017 threshold of $2,000,000.00. Thus, for decedents dying in calendar year 2017, although a Tax Waiver will still be required, fewer estates will be required to file a New Jersey Estate Tax Return, and those that do will have to pay less in New Jersey Estate Taxes.

Effective on January 1, 2018 (i.e., for decedents dying on or after this date), there will be no New Jersey Estate Tax. The legislation eliminates the Estate Tax entirely for decedents dying on or after that date.

Note that the legislation does not alter any aspect of the New Jersey Inheritance Tax, which will continue to apply in its current form. Also, although the tax itself will be eliminated, there will be no effect on existing liens for New Jersey Estate Tax, which will persist after December 31, 2017. In sum:

Date of Death New Jersey Estate Tax (NJET) Ramifications
Prior to January 1, 2002 Unpaid NJET does not constitute a lien.
January 1, 2002 – December 31, 2016 Estates valued at $675,000 or more are subject to the NJET; the lien for unpaid tax persists until paid.
January 1, 2017 – December 31, 2017 Estates valued at $2,000,000 or more are subject to the NJET; the lien for unpaid tax persists until paid.
On or after January 1, 2018 NJET is repealed.

Before the end of the year, we anticipate that the New Jersey Division of Taxation will amend the L-9 form (Affidavit of Resident Decedent Requesting Real Property Tax Waiver(s)) to reflect the new threshold of $2,000,000, as well as the IT-Estate (the New Jersey Estate Tax Return), to account for the threshold increase and the reduced rate of taxation. Just as before, even for 2017 estates that are alleged to be valued below $2,000,000 and thus exempt, an L-9 must be completed to obtain a Tax Waiver, which must be filed in the county land records.

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