For those looking to avoid estate and inheritance taxes, New Jersey is currently not the ideal state for an individual to spend his or her last days. Additionally, the effects of unpaid estate and inheritance taxes could linger long after the owner’s death.
New Jersey is one of only two states that impose an estate tax as well as an inheritance tax. If a person dies with assets exceeding the federal gift tax exclusion of $5.25 million over his or her lifetime, federal estate taxes will apply as well.
New Jersey currently imposes an estate tax ranging from 4.2% to 16% on estates valued above $675,000. Additionally, inheritors are subject to an inheritance tax between 11% and 16%, if the assets are inherited by a person other than the decedent’s spouse, parents, children, or grandchildren. There is no exemption level for inheritance tax.
If the inheritance and estate taxes are not paid, New Jersey law provides that they will become a lien against any real property owned by the decedent at the time of his or her death. If these liens are not paid or secured by bond, they will endure for a period of 15 years.
There is one way to avoid the lien, and that’s to create a revocable living trust. For clients who have over $675,000 in assets (which includes everything from your home to life insurance to your retirement account), a revocable living trust is the right solution to avoid the lien on assets and smoother estate administration.