Estate Tax Phaseout Dependent on Passage of Gas Tax Hike Bill

New Jersey residents may see a possible elimination of the estate tax in the next few years, but that all hinges on whether or not an increase in the state’s gas tax will be approved.

NorthJersey.com reported that the State Senate passed a bill, sponsored by Paul Sarlo and Steve Oroho, that would increase the gas tax by 23 cents, with an amendment to phase out the estate tax over time. As part of the deal, the threshold at which an inheritance would be taxed would increase until 2020, when the tax would be totally eliminated, according to NJBiz. The exemption is currently at $675,000, but it would go up to $2 million at the beginning of 2017 and again to $5.4 million by 2018.

In addition to an inheritance tax, New Jersey residents must pay an estate tax. (New Jersey is one of the few states in the nation that impose both.) An inheritance tax is imposed when real and personal property passed on from the decedent to its beneficiaries. The tax rate and the financial threshold vary, depending on the beneficiary’s relationship to the deceased. The decedent’s spouse or partner (whether domestic or via civil union), children, stepchildren, parents and grandparents are exempt from taxation. Siblings and the children’s spouses are exempt on the first $25,000; other beneficiaries not related to the decedent are exempt from the first $500. Entities such as churches, nonprofits and state retirement funds are also exempt.

The estate tax, which is separate from the federal estate tax, acts as a lien on the decedent’s property and assets, in that it cannot be passed on to the beneficiaries until the tax is paid in full and they receive written permission from the Director of Taxation. Any gift to a surviving spouse or a charity is fully deductible. Each spouse is also given an exemption (up to $675,000), which is non-transferrable; in other words, if one spouse fails to use it, that exemption cannot be passed on to the other spouse. The New Jersey Division of Taxation notes that, even if the decedent’s property is not subject to an inheritance tax, it may still be subject to an estate tax.

The bill has not been popular with many voters; a Rutgers University poll showed more than half oppose hiking the gas tax. Governor Chris Christie, who included a cut in the sales tax in the bill from 7% to 6%, told NorthJersey.com that the bill would be “dead on arrival” the minute it hits his desk.

If you have questions or concerns regarding estate taxation or need assistance in acquiring and filling out the proper New Jersey Estate Tax forms, contact the experienced attorneys at The Law Offices of Hunziker, Jones & Sweeney. For other estate tax planning and gifting matters, please call (973) 256-0456 for a consultation.

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