Avoidance of NJ Estate Taxes Through Marital Trusts

by Frank Campisano

New Jersey residents are generally unaware of the potential for the assessment of New Jersey estate taxes on their estates.   Although the current Federal exemption of $5,250,000.00 is more than adequate to shield most estates from Federal estate taxes, New Jersey has a relatively low estate tax exemption of $675,000.00.  At first blush, the New Jersey exemption of $675,000.00 also appears to be an adequate shield for most middle and upper middle income families until one undertakes a close examination of the assets which comprise a decedent’s gross estate.  A common misconception is that only traditional probate assets (e.g., assets passing under a Last Will & Testament) are included in one’s gross estate.  However, non-probate assets passing through beneficiary designations on contractual instruments such as investment accounts, IRAs, and Certificates of Deposits, which are termed “non-probate assets”, are also included in a decedent’s gross estate.  Moreover, all insurance proceeds or death benefits passing under life insurance policies owned by the decedent are also includable in the decedent’s gross estate even though they too pass through beneficiary designations rather than by a Will.

Although estate assets are also shielded by an unlimited spousal exemption, far too few people in New Jersey consider the impact of New Jersey estate taxes when both spouses ultimately die and leave their combined estates to the couple’s children.  For example, if the husband dies his estate will pass to the wife tax free under the marital exemption.  When the wife ultimately dies, however, her estate which is comprised of both her and her husband’s assets will then pass to the couple’s children.  If the combined estates of both spouses exceed $675,000.00, New Jersey will assess an estate tax on transfers to the couple’s heirs.   The failure to consider the tax consequences on the “second spouse to die”, coupled with the misconception regarding the inclusion of non-probate assets in the gross estate often lead to the payment of estate taxes which could have been avoided through effective estate planning.

A fundamental technique utilized by estate planning professionals to limit both Federal and New Jersey estate taxes involves the use of marital trusts.  A marital trust allows a portion of a spouse’s estate to support the surviving spouse, but exclude certain assets from being included in the surviving spouse’s estate.   A carefully crafted and funded marital trust will thus save the surviving spouse’s estate from significant estate tax liability

At Sedita, Campisano & Campisano, we provide effective estate planning to suit your family’s needs.  We are experienced in drafting and funding marital trusts which can minimize the amount of Federal and New Jersey estate tax liability.  We will review your financial situation and carefully formulate an estate plan that best suits your particular needs.

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