The following article was written by  New Jersey Lawyer Michael B. Mangini, Attorney at Law 

DEATH TAX PLANNING IN NEW JERSEY

As of this writing, we are in a period of uncertainty regarding the future of the federal estate tax. Although the House of Representatives has repeatedly voted to end the tax, the Senate has repeatedly voted to continue the tax. Many individuals have their own ideas about what will happen, but the truth is that nobody knows. If tax planning is an issue, flexibility is the key to a successful tax reduction strategy. Even if both houses of Congress and the President agree to end the federal tax, planning to reduce New Jersey Estate and Inheritance taxes must be considered.

The Federal Estate Tax is a tax on the right to transfer property at death and is imposed on a decedent’s taxable estate, i.e. the value of all interests in property the decedent owned at the time of his death. The taxable estate includes, but is not limited to, the face value of life insurance policies, retained life estates, retirement funds, real estate, cash equivalents, personal property, business interests etc. The IRS has very technical rules for determining what property is taxable. If the value of the taxable estate falls below the applicable exclusion amount, no federal estate tax is due. The exclusion amount in the period 2007-2008 is $2 million. In 2009 the amount will be $3.5 million. In the 2010 there is no tax, but in 2011 the exclusion amount is scheduled to be $1 million with a tax rate of 55%.

The State of New Jersey imposes an estate tax if the value of a decedent’s taxable estate exceeds $675,000.00. This is not scheduled to change; there is no plan for the elimination of New Jersey estate taxes. Although your estate may pay no Federal estate tax, your estate may have a New Jersey estate liability. The need for estate tax planning is not diminished, in fact, if reduction of estate taxes is a concern, planning is even more important. Assuming the taxable estate value is $700,000.00 the estate will pay $18,000.00 to the State of New Jersey. If the estate is valued at $1,600,000.00, the estate will pay the State of New Jersey about $70,800.00. A $3.6m estate will pay $238,800.00

New Jersey also imposes an Inheritance Tax on transfers to extended family and unrelated persons. The tax rate ranges from 11% to 16% depending on the amount of transfer and the relationship between the decedent and the recipient.

Federal and state law permits techniques designed to reduce or eliminate estate and inheritance taxes. The tools available include Testamentary Trusts created in your Last Will and Testament, Properly Drafted Business Agreements, Inter Vivos Life Insurance Trusts and Charitable Trusts, correct life insurance and retirement account beneficiary designations, gifts during life and other legal techniques designed to reduce or eliminate the tax bite.

Don’t make the mistake of ignoring death taxes. We still have substantial federal and New Jersey taxes. Proper planning may help you pass more of your property on to your heirs.

Other New Jersey Law articles written by local NJ Lawyers you may find helpful can be found on New-Jersey-Lawyers.com

 The following article was written by  Michael B. Mangini  Attorney at Law and can be found on New Jersey Lawyers  

WILLS AND TRUSTS PROTECT YOUR FAMILY

The primary purpose of Wills and Trusts created in your Will, but not funded until after your death, is protecting your beneficiaries from themselves and creditors. Trusts created in your Will are called Testamentary Trusts.

A By-Pass Trust is a great way to reduce estate taxes but it can also provide a surviving spouse with income while preserving trust principal for children of the current or a prior marriage. The By-Pass Trust may also be used to assure that wealth is responsibly used for the benefit of minor and adult children. The family, spendthrift, asset protection and special needs provisions described in the following paragraphs may be included in your by-pass trust.

With a testamentary Family Trust you may provide income to your adult child while minimizing the risk that the funds will pass to the child’s spouse upon the child’s death or divorce. Upon the child’s death, the trustee may continue the trust for the sole benefit of the grandchildren. The Family Trust may include spendthrift and asset protection provisions described in the following paragraphs.

An Asset Protection Trust is a type of trust that is designed to protect the trust funds from an adult child’s creditors. The Trustee has the discretion to distribute income and principal to the beneficiary for specific purposes. As long as there is no judgment or divorce, the trustee can freely distribute assets to the beneficiary. As soon as a legal problem crops up, the trustee may stop distributions and the creditor or spouse has no right to compel distributions.

Similar to the Asset Protection Trust, a Spendthrift Trust is appropriate when a beneficiary is unable to manage money or suffers from substance abuse. You want to assure that the beneficiary will have enough money to live, but you also want the money to last for years rather than months. As with the Asset Protection Trust, the trustee has the discretion to distribute income and principal to the beneficiary as needed and only for prudent expenses.

A Special Needs or Supplemental Benefits Trust minimizes the risk that a spouse, child, parent or sibling who is under disability may lose eligibility for public benefits such as Supplemental Security Income (SSI) and Medicaid. When the disabled beneficiary dies the trustee may distribute the balance of the funds held in trust to or for the benefit of another person who is called the remainder beneficiary.

Whether or not and what type of trust may be appropriate for you depends upon your specific case.

 Other articles written by New Jersey Lawyers can also be found on New-Jersey-Lawyers.com