795 Parkway Ave, Suite A-1, Trenton, NJ 08618, Lexington Mews Office Park

Sunday, April 24, 2005 11:00 PM

Under the 2001 Federal Tax Act, the Federal Estate Tax exemption amount is $2.0 Million per person in 2007 and 2008, increasing to $3.5 Million in 2009. The Federal Estate Tax is scheduled to be repealed completely as of January 1, 2010 (more accurately the exemption amount will increase to infinity); however, on January 1, 2011, if Congress has not re-approved repeal of the Federal Estate Tax, the Federal Estate Tax will kick back in, and the exemption amount will drop back to $1 Million per person.


Current proposals bouncing around Congress include an earlier repeal of the Estate Tax on the one extreme, and elimination of the 2010 repeal on the other. Added to this is the uncertainty caused by an unforseen (in 2001) war economy, new inflation worries, and uncertainty as to who will control the White House and Congress after the 2008 elections. Politically, therefore, the future of the Federal Estate Tax is at best blurry and at worst opaque.


Dramatic rise in the federal exemption amount has caused New Jersey to decouple its exemption amount from the federal exemption amount. Recall that for years both were $600,000. The federal exemption amount is now $2.0 Million and growing; however, New Jersey's exemption amount is frozen at $675,000. Thus, while it has become almost stupid simple to avoid a Federal Estate Tax liability, it may still be difficult to avoid the New Jersey Estate Tax. Some people, aware of the federal exemption amount, believe they are immune from "the estate tax." They may be right in terms of the Federal Estate Tax, but wrong in terms of the New Jersey Estate Tax.


Individuals with estate plans created using pre-2001 tax law assumptions need to have their estate plans reviewed:


  • Individuals with pre-2001 Wills that maximized use of the exemption amount (and minimized use of the unlimited marital deduction) to avoid estate taxes may now face a significant New Jersey Estate Tax liability upon the death of even the first spouse to die. The tax rate on the first $52,000 of assets above the $675,000 threshold is an oppressive 37%.
  • Individuals with Wills that maximize use of the exemption amount are now leaving more (perhaps significantly more) than intended to persons other than surviving spouse, to the possible detriment of surviving spouse.
  • A person with a large retirement account should specify how estate taxes will be apportioned, or else the beneficiary of the retirement account may escape tax-free while other beneficiaries (usually the residuary estate beneficiaries under the Will) shoulder the entire estate tax.

Attorney David G. Christoffersen has a Masters Degree in Tax Law from Georgetown University Law Center in Washington, D.C. and has been advising clients on tax law and estate planning issues since 1988.

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