If you’re going to die, don’t do it here in New Jersey
NJ – ‘If you’re going to die, don’t do it here.’ That’s advice a financial planner might give his New Jersey client today, not protecting the rug in his office, but the size of the estate to be passed along to heirs. No other state levies taxes as high as New Jersey’s on both the deceased and those who inherit, and no other state taxes as many people.
Most states don’t even have a so-called death tax. New Jersey is one of only two taxing both estate and heirs. Fifteen states and Washington, DC, have an estate tax, but taxes begin at a higher level than they do here. Six states have an inheritance tax , but rates are lower elsewhere than they are here.
New Jersey taxes estates worth more than $675,000 while federal taxes don’t kick in until the estate surpasses the $5 million level. The value of estates includes cash, real estate, retirement and bank accounts, life insurance and other assets.
Inheritance tax rates here range from 11 to 16 percent. There are exceptions. It doesn’t apply to money left to spouse, parent, grandparent, or child. However, it does apply to siblings and spouse’s children who benefit by $25,000 or more, as well as transfers of $500 or more to friends or other relatives.
If you don’t think that’s fair, you have company. Ten bills were introduced in the Legislature this session to improve the situation. Eight of those were introduced by Republicans who have long lists of co-sponsors. Two were introduced by Democrats with a few co-signers. A quick look at the bills shows that most would apply to anyone who dies after 2010 or 2011, indicating these were old bills recycled by sponsors who held out little hope they’d be considered any time soon.
All that changed, however, when a few prominent Republicans suggested they might vote for an increase in the gasoline tax as a trade-off for reductions in estate taxes. Few seem to have noted that if you raise an extra million here and lose a million there, the state’s no better off.
Arguments instead focused on who’s paying which tax. Most people don’t leave estates valued at more than $675,000, but most people do purchase gasoline. So an increase in the gas tax would hit more people in small amounts, but a significant change in estate taxes would help fewer people with much larger amounts.
The 10 bills take different approaches to improving the situation for estates. One would raise the tax threshold to a million dollars, one to $900,000. Several would match the federal estate rules, one would eliminate estate taxes altogether. Two would raise the limit to $5 million over five years. One would eliminate the estate tax only if personal income tax rates on high-income earners increased. Two propose complex new rates for different sized estates.
Not one of them is likely to pass as is. But a piece from this one and a piece from that one might be combined to create a whole new bill likely to pass muster with Democrats, as well as sponsoring Republicans.
Despite all the chatter, however, chances of passage dimmed with the latest budget proposal. New Jersey needs every cent it can raise, just to pay old bills. Annually estate taxes bring in about $750 million.
Photo: Bayview Cemetery, New Jersey, by Neil Barris.
Originally published by The Jersey Journal, author Joan Quigley.
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