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gas tax, the New Jersey estate tax exemption will be raised from $675,000, to $2,000,000 in 2017, and eventually fully repealed in 2018.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.

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.

Will New Jersey Take a Gas Tax in Exchange for Repeal of the Inheritance Tax?

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New Jersey is one of the last states to still have the loathed inheritance tax. To make matters worse for New Jerseyans, the state has the lowest estate tax exemption limit — $675,000. For years members of various political groups have called for a repeal of the state inheritance and estate tax laws. Will they finally achieve their goal?

A recent plan has been in the works to offer some form of tax cut on the current inheritance and estate tax which is tied to an increase in gas prices. Basically, let’s pay for a tax cut by charging more for gas throughout the state.

Who will the new law affect if it passes?

In the unlikely event that this proposed gas tax-estate tax tie-in plan comes to fruition, it will affect everyone in the state. The current estate tax exemption is $675,000, ridiculously low and still a substantial amount of money for the average American. A tax cut would raise this limit considerably, helping the wealthiest members of the state while hitting the middle and lower-middle class the hardest.

As for the inheritance tax, no tax is imposed on class A beneficiaries (father, mother, grandparent, descendant, spouse, civil union partner, or domestic partner). For beneficiaries who are subjected to the inheritance tax, the current rate is between 11-16%. So basically, if your uncle leaves you an estate, it is subject to an 11-16% tax from the start. If the total value of the estate exceeds $675,000, you also have to pay an estate tax. If the new law passes, the inheritance and estate tax laws will take a cut but the price per gallon for gas will go up as a result.

Considering that fewer than five percent of estates are affected by the estate tax, the plan may not be worth it. Many economists say the numbers don’t add up, especially since the inheritance tax and estate tax combined equal New Jersey’s third largest source of tax revenue.

If you have questions about the N.J. estate tax, or need help probating a will, consult with an experienced attorney as soon as possible. For legal assistance with estate planning matters in Hunterdon and Union Counties, contact Alec Borenstein, Esq., at alec@bmcestateplanning.com or call 908-236-6457.

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