Will Charitable Giving Die with the Death Tax?

death tax charity

There are three crucial domestic subjects on our minds right now. First, Hurricanes Harvey, Irma and Maria. Our thoughts and prayers go out to Texas, Louisiana, Florida and Puerto Rico, especially in light of what we (in the New York City area) went through with Superstorm Sandy. It’s hard not to think about the devastation. If you’d like to give to the Red Cross, please CLICK HERE.

The second subject is fantasy football. But that’s not really my area of expertise as I have a hard time even making the playoffs in my fantasy football league. Also, many of my readers don’t care about fantasy football.

The third subject is tax reform. Trump has given numerous speeches about tax reform, and all of the political pundits say that Trump and the GOP need “a win” which must come from reforming our tax code.

An essential piece of tax reform is the repeal of the estate (or “death”) tax. Most conservatives want to repeal the estate tax and its tax rate of 40%. What many of these people do not know is that currently the federal estate tax exemption is $5,490,000 for a single person and almost $11,000,000 for a married couple. Only .02% of the estates in the country are subject to federal estate tax.

I read a fascinating Bloomberg articleabout the impact of the death of the death tax on charitable giving. In 2010, the last time we had no death tax in the country, gross charitable bequests totaled almost $7.5 billion, which was a 37% drop from $11.9 billion in 2009. When the death tax was resurrected in 2011, charitable giving soared to $14.36 billion.

Many conservatives are ambivalent as they contemplate the repeal of the death tax. On the one hand, GOPers are big believers in charitable giving. On the other hand, conservatives think the death tax is unAmerican and, according to Representative Jim Jordan of Ohio, “It’s peoples’ money. It’s their families’ money. It’s not the government’s money.”

The problem, as I see it, is that too many of our legislators are simply denying the truth. Death tax repeal does not hurt small businesses and farmers as many conservatives say. At most, it hurts 3% of farmers and small businesses.

Moreover, repeal of the estate tax will absolutely hurt charitable giving. There’s no way around it. According to the article (which I encourage you to read) our representatives think that repealing the estate tax will actually encourage “Americans to give more.” All of the evidence points to the contrary.

Thus, the debate. Repeal the unAmerican death tax or maintain the status quo and focus on other tax issues (like the corporate tax). Perhaps there is a middle ground, and I hope there is. Until then, the debate rages on.

(As an important aside to many of my readers, estate tax repeal also has a negative impact on the insurance industry. Wealthy households often use insurance products as: (1) estate tax paying vehicles, (2) charitable giving devices, or (3) estate equalization strategies. If there is no estate tax, there could be no reason for many wealthy people to buy these insurance products.)

To discuss your estate planning matter with us, contact Alec Borenstein, Esq., a partner with the firm at alec@bmcestateplanning.com or call 908-236-6457 today.

Tomorrow is a New Day in New Jersey

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New Jersey. The Garden State. The land of extremely high taxes, corrupt politicians, and (often) broken roads. But at least we have the second cheapest gas in the coun–wait, what?

Is our gas tax going up tomorrow?

On October 23, 2016, Chris Christie signed legislation which raises our gas tax by 23 cents per gallon. If you live in the Garden State, then your gas bill will go from the second lowest in the country to the seventh highest.

Why do we live here again? It must be the weather!

There is a saving grace to this legislation, and it directly impacts your estate plan.

First, let’s discuss the new law. The “gas tax bill” calls for a 23 cents per gallon increase. In total, our gas tax will be 37.5 cents a gallon. The tax increases are supposed to generate $1.23 billion a year for the Transportation Trust Fund.  According to the American Automobile Association, this will cost the average driver about $170 more a year.

That’s the bad news. And for people like me who drive all the time, it’s very bad news.

But for my estate planning clients, it’s a Game Changer.

In exchange for the gas tax increase, our governor negotiated a raise to the estate tax. As I’ve written before, New Jersey currently has the worst estate tax in the country, with an exemption of $675,000. This means that for estates over $675,000, the amount of tax owed to New Jersey could get as high as 16% (in the most extreme cases). If you own a home and an insurance policy and a few retirement assets your kids will probably have to pay something to New Jersey.

However, that seems to be changing. In exchange for the raise in the gas tax, the New Jersey estate tax exemption will be raised from $675,000, to $2,000,000 in 2017, and eventually fully repealed in 2018.

This is huge. I can’t tell you how many times I meet with clients who do not want to leave New Jersey, but they feel compelled to leave because they do not want our legislature getting their hard-earned money.

According to NJ.com, about 3,500 estates are subject to the estate tax each year. The richest 94 estates paid an average of $1.2 million. The non-partisan New Jersey Office of Legislative Services has estimated that the estate tax elimination should decrease the budget by $16 million in 2017, $116 million in 2018, and $320 million in 2019.

What those numbers do not account for are all the people (many of my clients included) who have left the state because of our crazy estate tax. My hope is that, what New Jersey loses in estate tax, it will gain in income tax. I can personally think of dozens of clients who will now stay in New Jersey because of estate tax change.

There is more good news. The Earned Income Tax Credit will get a rise from 30% to 35% (the federal level). For retirees, the news is also positive. Currently, a married couple who files jointly can exclude the first $20,000 in retirement income from state income taxes. The gas tax bill increases that number to $100,000 for married filing jointly, $75,000 for individuals, and $50,000 for married filing separately. There is also another tax exemption for veterans.

A question I’ve been getting a lot – do I need to change my documents? Yes, and no. If your estate plan is older than 10 years, you probably should have someone look at your plan immediately. Older plans often forced people to set aside money (in a Credit Shelter Trust) to save on New Jersey estate taxes after the death of the first spouse. But if there is no New Jersey estate tax, then there is no reason to make your money harder to access.

On the other hand, none of my clients have to change their plans because we made setting aside the money in a Credit Shelter Trust an option, but not the only option. Many other attorneys have done the same thing, which is why you may or may not be OK. If you would like me to take a look at your plan (for free) send me an email and I’ll let you know if you’re covered.

As I write this on October 31, 2016, I know that tomorrow we will all wake up to a new day in New Jersey. If you drive you will suffer, but your children and heirs will not. Just another day in the Garden State!

If you or someone you know wants to make sure your estate plan is prepared for the estate tax situation, please feel free to call us at (908) 236-6457, or email me at alec@bmcestateplanning.com.

Jersey… Wrong? Exodus of the Millennials

NJ Inheritance Tax

In the past, much has been written about retirees leaving New Jersey in record numbers for multiple reasons — estate tax, inheritance tax, cost of living, population density, weather, and even marijuana legalization. However, now in 2016, it is millennials — that is, individuals between the ages of 18 and 34 — who are leaving the Garden State en masse.

Recently, the New Jersey Business & Industry Association released a report that showed the out-migration of around 2 million N.J. residents between 2004 and 2013 which has cost the state $18 billion in net adjusted gross income. The report goes on to explain that during those eight years in question, the state lost the following potential revenue:

  • $8.4 billion in household spending
  • $11.4 billion in economic output
  • 75,000 jobs
  • $4 billion in total lost labor income.

So, where are young New Jerseyans moving to start families, settle down and retire? Not very far it turns out. In fact, the majority of N.J. residents exiting the state are looking for homes in Pennsylvania and New York. This allows millennials to live comfortably out-of-state while still being able to work and visit friends and family in N.J.

From an estate planning perspective, it makes a lot of sense. Even though Governor Christie called for a repeal of N.J.’s estate tax in a January address, the fact remains that N.J. currently has an estate tax AND an inheritance tax. N.J. also has the lowest estate tax exemption — $675,000. Although P.A. has an inheritance tax, the rate is low (4.5 percent for those who die after 2000) in comparison to N.J.’s 11-16 percent.

In addition, N.Y. is in the process of raising its estate tax exemption limit to match the federal exemption of $5.9 million by 2019.  Unless New Jersey changes its estate and inheritance tax, it seems likely that the exodus will continue, especially when affordable living is just across the border and within an hour of friends and family.

If you are thinking about your estate plan, it’s a good idea to speak to a lawyer. For N.J. and N.Y. residents seeking counsel on wills, trusts and other aspects of estate planning, contact Alec Borenstein, Esq., at alec@bmcestateplanning.com, or call 908-236-6457.

N.J. Estate Tax versus Federal Estate Tax

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If you live in New Jersey and are planning your estate, you may be wondering how the N.J. and federal estate taxes will affect your heirs. Unfortunately, N.J. has both an inheritance tax and an estate tax. Furthermore, the state’s estate tax exemption limit is quite low when compared to the rest of the states in the union.

State exemption limit

The exemption limit in New Jersey as of 2016 is $675,000. If you are the executor of a Will, and the value of the gross estate is more than $675,000, you will have to file a New Jersey estate tax return. However, keep in mind that there are various deductions such as funeral expenses, attorney’s fees, and income tax bills that may reduce the estate value below the exemption limit.

Federal exemption limit

The federal exemption limit as of 2015 is $5.43 million per person, which is up from $5.34 million in 2014. This means that a married couple in 2016 can give away $10.86 million tax free. It also means, that unless the decedent’s gross estate is valued at more than $5.43 million, it won’t have to pay the federal estate tax rate of 40%.

What is meant by “the value of the gross estate”?

Many people make the mistake of assuming the word “estate” refers only to a house. In fact, it encompasses much more. In order to calculate the total value of a decedent’s estate, numerous assets are gathered and assessed, including:

  • New Jersey real estate;
  • Vehicles and other items of personal property;
  • Securities and investment accounts;
  • Funds from retirement account;
  • Business interests such as a sole proprietorship, limited liability company, or small corporation; and
  • Bank accounts and certificates of deposit.

Also keep in mind that any property you leave to your spouse or civil partner is exempt from the NJ estate tax.

Comprehending legal information after losing a loved one can be difficult and frustrating. An experienced attorney can explain estate planning to you in an easily accessible manner so that you and your family can move on with your lives. For more information on estate planning in Union and Hunterdon Counties, contact Alec Borenstein, Esq., at alec@bmcestateplanning.com or call 908-236-6457 today.

What is Happening to New Jersey’s Estate Tax?

There has been a lot of talk lately about recent developments with New Jersey’s estate tax, and I wanted to pass on a quick update for this month’s newsletter.

As you’ve read here before, New Jersey has the worst estate tax in the country. Better said, New Jersey’s estate tax exemption amount, i.e., $675,000.00, is the lowest in the country. That means if your estate (including life insurance) exceeds $675,000.00 then your family members could be on the hook to pay New Jersey estate tax. Not to mention New Jersey has inheritance tax as well.

But change could be on the way. In February, a state Senate committee passed a bill that would gradually eliminate the estate tax.

From an estate tax perspective, the bill calls for:

  1. Raising the $675,000 exemption to $1,000,000 in 2017;
  2. $2.5 million in 2018;
  3. $3.5 million in 2019;
  4. $5 million in 2020; and
  5. Full repeal in 2021.

Sounds fantastic, right? The problem is that legislators believe the only way to recover the roughly $800 million shortfall from an estate tax change is to raise the gas tax. The reason these legislators give is because of the connection between the estate tax which funds the Transportation Trust Fund, which is currently on course to run out of money by our next (June 2016) newsletter.

This leads to the main question New Jersey legislators should be asking: Is the New Jersey Estate Tax causing residents to leave the state and, thus, lose income tax? According to the state’s 2015 debt report, the answer is a resounding “yes!”

Over 2 million people left the Garden State between 2005 and 2014, costing approximately $18 billion in income according to the New Jersey Business and Industry Association. In April, David Tepper (pictured above), one of New Jersey’s most wealthy residents, announced he was moving to Florida, in big part because of its abusive tax laws.

But there are two sides to every issue. Many legislators say that raising the estate tax at the cost of New Jersey gas prices would cause less wealthy residents to finance the inheritance of the middle and upper classes.

As of right now, nothing is official. There have been hints out of Trenton that they are already expecting a smaller budget as a result of some form of estate tax increase, but we do not know anything for sure. Be sure to stay tuned – once something becomes official, we will let you know!

One last note – from time to time from now on I’ll be mentioning presentations that I’ll be giving with experts related to Estate Planning. On June 9, 2016, I’m going to be presenting at the Metuchen YMCA with an insurance expert. To learn more about this event CLICK HERE.

If you have any estate planning questions, please feel free to call us at (908) 236-6457, or email me at alec@bmcestateplanning.com.

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