Over the last few years, both New Jersey and federal estate tax laws have changed. Currently, a decedent’s estate only needs to pay federal estate tax if the gross value of the estate exceeds $5,490,000. In New Jersey, estates with a value in excess of $2,000,000 have to pay the state’s estate tax. As of January 1, 2018, the New Jersey estate tax will no longer be in effect.
Married couples in New Jersey may be able to avoid estate tax if they employ a credit shelter trust. A credit shelter trust allows each spouse to draft a will to devise a portion of their estate into a trust for the surviving spouse. The amount must be equal to the amount that is able to pass free of tax. This allows the living spouse to be able to use the money in the trust for health or maintenance expenses. The surviving spouse can serve as the trustee so that they can use the assets in the trust whenever, and however, they want.
In order to shelter assets, a surviving spouse must also have prepared and filed a federal estate tax return for the decedent’s estate and made an election on the return. In New Jersey, a couple can shelter up to $4,000,000 in a credit shelter trust. Credit shelter trusts double the amount of assets that are able to pass from one spouse to the next without an estate tax. However, since the estate tax will be eliminated in New Jersey as of January 1, 2018, married couples will no longer have to use a credit shelter trust to avoid New Jersey estate tax.
In terms of Federal Estate Tax, which will remain in effect, a married couple can still utilize a credit shelter trust. A married couple can shelter nearly double the gross value of the current guideline, which is $5,490,000. In terms of New Jersey estate tax, couples will no longer need to prepare for a credit shelter trust since the state tax will no longer exist. This will help alleviate some estate planning issues.
A spouse is still able to have a trust created for the surviving spouse upon their death, or they may give their spouse the option to a fund a trust upon their death through a disclaimer trust. A disclaimer trust is only funded if the surviving spouse does not want a portion of the decedent’s trust. This type of trust does not have to be funded after the death of the first spouse. However, this depends on the size of the estate at the time of the first spouse’s death.
If you currently have a credit shelter trust as part of your will, it is important to have your will examined, given the change in the law governing the New Jersey estate tax. It is important to consult a knowledgeable professional to assist you with your needs. The attorneys at the Law Offices of Hunziker, Jones, & Sweeney, P.A. have experience assisting New Jersey residents with all aspects of trusts and estates, including wills, estate administration and estate taxation. Our estate planning lawyers are trusted by our clients to handle each legal matter with diligence and compassion. For more information or to schedule a consultation, call our New Jersey estate planning firm at (973) 256-0456.