When going through the estate planning process, it is normal to want to protect beneficiaries from experiencing a significant tax burden when they inherit the estate. Tax planning for both estate and inheritance taxes can go a long way in ensuring one's assets go to whom they are intended and not to Uncle Sam. This week, this column will give a basic overview of how estate and inheritance taxes work in the state of New Jersey.
First, let's discuss estate taxes. When someone dies, the federal government may require that taxes be paid on the value of their estate. The value of the estate has to be in the millions for estate taxes to be incurred. In order to determine the true value of an estate, one will need to take the net value of the estate and subtract any liabilities. As far as state taxes go, New Jersey no longer collects an estate tax.
Now, let's discuss inheritance taxes. New Jersey is one of six states that still collects an inheritance tax -- unless the property is passed to children or grandchildren. An inheritance tax is simply a tax that a beneficiary may have to pay for any property he or she receives from the estate. It is possible to have the tax paid for by the estate if doing so is specified in a will.
Depending on the size of one's estate, the tax liability that beneficiaries may face may not be very significant or it could be quite substantial. Every case is different. New Jersey residents can limit the estate and inheritance taxes their beneficiaries may face by planning now and adjusting their estate plans as tax laws change. An attorney with experience handling estate tax planning can help one set up an estate plan that benefits their beneficiaries and does not leave them burdened by unnecessary taxes.