You don’t need to deal with New Jersey estate tax unless the deceased’s assets is more than the 2003 figure. This figure rises annually to $1,000,000 by 2006 (same figure as the federal estate tax). Also, if the estate includes “qualified family-owned business interests,” the exemptions may be up to $1,300,000; there are certain requirements here. Widows and widowers get an unlimited marital deduction for property that goes to them. (Please note that these figures are not applicable to New Jersey inheritance tax).

Words You Need to Know

    * Estate tax is the tax on the right to transfer property at the death of the owner.
    * Assets are things a person owns. Money is an asset. So are cars, houses, land, stocks, bonds - anything that has a dollar value.
    * The estate is a special thing created by law. Everything which must be done to settle the affairs of the person who died is done “through the estate.” For example, giving the dead person’s assets to heirs is done through the estate.

      Almost all assets the dead person owned become part of the estate. Assets going through the estate include the dead person’s share of any property owned jointly with another person unless the property title has a “Right of Survivorship” (see below).
    * Probate is the court process to settle the affairs of the person who died. Estates “go through probate”.
    * A personal representative is the person who acts for the estate. This person is also often called the executor or administrator.

      Everything done through the estate is done in the estate’s name, not the dead person’s name. For example, things would be done by the “Estate of John Doe, Deceased,” not by “John Doe.”
    * Right of Survivorship is a way assets can be jointly owned. The title is in the names of two or more people each “with rights or survivorship.”

      When a joint owner dies, that owner’s share goes to the surviving joint owner. This is true whether or not there is a will. It is true no matter what the will says.

      Jointly owned assets pass to the living joint owner “outside of the estate.” The estate never takes title; however, estate tax may need to be paid.

Amount and Nature of the Tax

The New Jersey estate tax is the amount representing the difference between the gross amount of the inheritance, legacy and succession taxes actually paid to New Jersey (and any other states) and the amount of the credit allowable against the federal estate tax due to the U.S. Government. In simpler terms, a New Jersey estate tax is due only if the amount of allowable credit in the federal estate tax proceeding exceeds the amount of New Jersey inheritance taxes paid.

    Example

    Mr. X dies, leaving a taxable estate of $700,000 for federal estate tax purposes. The credit allowable for state taxes was $18,000 at the time, and the amount paid to New Jersey for inheritance taxes was $6,000. The New Jersey estate tax due is $12,000.

Filing and Paying the Tax

The New Jersey Estate Tax Act requires the filing of the Federal Estate Tax Return (Form 706) with the Director of the Division of Taxation. (The IRS office will have tax form 706 available). The estate pays these taxes that are due. The remaining assets are then given to the heirs.

The ultimate burden is on the heirs to ensure that any estate tax is paid. If the executor or the personal representative does not pay the taxes, it is the responsibility of the heirs to pay.

Taxes on Joint Assets

    * The dead person’s part of a jointly owned asset will be taxed as part of the estate. The title of the jointly owned asset will show who owned what.
    * Joint owners of property do not always own equal shares. But the shares will be considered equal unless the title says differently.
    * When joint property passes outside of the state to the surviving owner(s), the property is treated as part of the estate for estate tax purposes (unless the surviving owner is a surviving spouse). Such property may be subject to estate tax.
    * Any asset owned jointly by a married couple (where both names appear on the title, such as a bank account) passes directly to the survivor when one of the couple dies. The surviving spouse generally will not have to pay estate tax on these types of assets.

Taxes on Life Insurance Benefits

The amount paid out on a life insurance policy is not usually taxes. Some insurance payments to trusts, or to the estate, may be taxable.

Talk with your insurance agent, trust officer, lawyer or the IRS to find out your needs.

Death, Taxes and Control

You cannot avoid estate taxes if you want to own and control your assets until you die.

You can give away assets or set up a trust to avoid taxes. But you give up control if you do this. This could cause other problems. Never do this without professional advice.

Married couples may want to keep many of their assets in joint names. But even married couples may want to have separate property. For example, couples often keep separate property in second marriages. Professional advice will help you deal with YOUR needs.