“...in this world nothing can be said to be certain, except death and taxes”

— Benjamin Franklin

The NJ Transfer Tax

Posted by & filed under Estate Taxes.

Most individuals will not have to worry about Federal Estate Taxes since the federal exemption is now $5.43 million. However, NJ Transfer tax affects the majority of NJ residents. If you are a New Jersey resident and your overall estate is more than $675,000 at the time of your death, you will be subject to the New Jersey Transfer Inheritance Tax.

This tax is based on the size of your assets and automatically kicks in upon your death if the overall net worth of your estate is more than the $675,000.

Most individuals are not aware of this tax and do not understand how their assets are calculated for taxes when they pass away. Your estate encompasses much more than you may think. It can include anything from real estate, to cash, cars, stocks, bonds, life insurance, retirement accounts and even personal effects. For most New Jersey residents this $675,000 threshold is satisfied just alone in real estate and a 401(k).

How can you avoid the New Jersey Transfer Inheritance Tax? Well for starters, you will want to meet with an experienced estate planning attorney who will recommend certain legal documents that are specifically tailored towards your individual needs and will help you minimize this impact on your estate at death. A useful estate planning legal document for a married couple that the law office of Gail L. Abrams uses is called a Discretionary Living Trust. This is a great document to consider if your estate is more than $675,000 because it will help minimize taxes at death when you both pass away for the benefit of your children. Essentially, upon the death of one spouse up to $675,000 is shielded from estate taxes.

Do you know there is a possible double taxation on money held in retirement accounts? When you die the income tax is due on the full amount of your IRA and this tax is assessed to your beneficiary. If your children are not aware that they can stretch the IRA, they may be subject to a lump sum income tax up to the highest tax bracket of 39.6% as well as the New Medicare surcharge tax on Investment of 3.8%. This is just the income tax that they will be subject to. Then we also have to add in NJ Transfer Inheritance Tax. There is a solution such as an IRA Trust that restricts how your children will get the IRA to help minimize these taxes. Gail L. Abrams specializes in estate and financial strategies that help minimize these taxes to your heirs.

What about gifting? With 2015, an individual can gift $14,000 a year indexed for inflation without filing a gift tax return. What does this mean for you and your family? This means you can continue if you have not started gifting to your children large lump sums of money tax-free. Moreover, if you are married you can combine your individual $14,000 annual exclusion gifts and gift up to $28,000 per person, per year. Gail L. Abrams an attorney to help you properly plan for your family’s financial growth and stability. It’s never too late to start planning.

The Law Offices of Gail L. Abrams offers free seminars on estate and financial planning including Living Trusts, Wills, Powers of Attorney, IRA strategies, Retirement Planning and more.  Please see our Workshops page for more information.

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Securities and Advisory services offered through LPL Financial,a registered investment advisor. Member FINRA/SIPC. Beacon Financial Group and LPL Financial are separate and unrelated companies. LPL Financial does not render tax or legal advice.