New Jersey Estate Tax Repeal is Finally Here!

On October 14, 2016, Governor Christie signed into law legislation that not only imposes a gas tax increase of 23 cents per gallon to fund transportation projects, which was made effective November 1, 2016, but also makes significant changes to the New Jersey estate tax (the so-called “Death Tax”) and modifies the New Jersey Sales Tax and Gross Income Tax.

Effective January 1, 2017, the current New Jersey estate tax exclusion amount will increase from its current amount of $675,000 to $2,000,000, and as of January 1, 2018, no New Jersey estate tax will be imposed.

It is noteworthy that the legislation does not state that the New Jersey Estate Tax is repealed as of January 1, 2018. It is unclear whether this is simply the result of the relatively fast pace in which this legislation was adopted once a compromise in Trenton was reached or if it reflects the political possibility that the tax could be re-imposed in the future. New Jersey residents will need to be watchful with respect to this risk.

Admittedly, this legislation does not change the current New Jersey inheritance tax, which is a tax imposed on the transfer of assets to certain generally remote classes of beneficiaries, but not to transfers to charities, spouses, parents, grandparents, children, or grandchildren. The New Jersey inheritance tax is imposed at rates that range from 11 percent to 16 percent, depending on the type of beneficiary and how much the beneficiary receives. Critically, the current New Jersey estate tax, prior to the new changes, affects many estates because it has the lowest exclusion amount in the country. In comparison, the number of estates impacted by the New Jersey inheritance tax is much less significant. The new law, of course, does not affect federal estate tax law, including the current federal estate tax exclusion, which is $5,450,000 for this year and will increase to $5,490,000 on January 1, 2017.

The new legislation reduces the New Jersey sales tax rate from 7 percent to 6.625 percent on and after January 1, 2018 (6.875 percent during 2017) and modifies the New Jersey Gross Income Tax by raising the Earned Income Tax Credit from 30 percent to 35 percent of the federal benefit beginning in Tax Year 2016, adding a $3,000 exemption for veterans and significantly increasing over four years a retirement income exclusion to $100,000 for joint filers, $75,000 for individuals, and $50,000 for persons married but filing separately. The law retains provisions in current law that exclude taxpayers having gross income of more than $100,000 for the taxable year from receiving the benefit of the pension and retirement income exclusion.

New Jersey residents with current wills that use “credit shelter” or “bypass” trusts to protect against New Jersey estate tax on the first spouse’s death should have their wills reviewed for possible revisions.

While these changes to the New Jersey estate tax are welcome news to many New Jersey residents, it may be even more important than normal for clients to review their current estate plans to ensure that their estate planning documents are consistent with their current wishes, taking into account these significant New Jersey changes.

For more information on these New Jersey legislative developments, please contact Rita M. Danylchuk at 973-596-4653 or rdanylchuk@gibbonslaw.com or Peter J. Ulrich at 973-596-4635 or pulrich@gibbonslaw.com.