Estate Planning Must Be Ongoing

When the American Taxpayer Relief Act was enacted in January 2013, it all but eliminated the concern over the estate and gift taxes for many Americans by making the $5,000,000 exemption (indexed for inflation) permanent. (Note: The exemption for 2016 is $5.45 million and will be increased to $5.49 million for 2017.)

However, as the differing estate tax positions of our presidential candidates and evolving estate tax laws at the state level illustrate, estate planning will never be a “one and done” activity.20161024-livingtrust-estateplanning-bigstock

First, Secretary Clinton and Donald Trump could not differ more on the topic of estate taxes. Clinton initially suggested increasing the estate tax to 45 percent from 40 percent and applying it to more estates, starting with those worth $3.5 million ($7 million for married couples). Recently, however, she has suggested raising the estate tax to 65 percent. On the other hand, Trump wants to repeal the estate tax that is currently levied on estates worth more than $5.45 million ($10.9 million for married couples). Of course, if the current gridlock in Washington persists, neither plan will be adopted as advocated.

Importantly, individual states’ estate tax laws have also been moving targets. In 2001, all 50 states had some form of death-time transfer tax, either an estate or an inheritance tax. In 2013, only 21 states had an estate or inheritance tax. And just last week, New Jersey abolished the state estate tax beginning January 1, 2018. That makes it a lot more attractive to retire to that New Jersey beach house!

The abolition of the estate tax is especially notable because New Jersey previously imposed the highest estate tax of all the states. Its current estate tax exemption of $675,000 was the smallest in the nation. The recent legislation signed by Governor Chris Christie on October 14, 2016 makes the estate tax exemption $2,000,000 for New Jersey residents dying during 2017 and eliminates the tax all together in 2018. The estate tax savings will be significant. Currently, the New Jersey estate tax on a $1 million estate is $33,200, on a $2 million estate is $99,600, and on a $5 million estate is $391,000.

Note that New Jersey also imposes an inheritance tax that ranges from 11 to 16 percent. That remains in effect. Even so, New Jersey now compares favorably to states such as Florida, Texas and California for estate tax planning purposes. In the Northeast, states retaining an estate tax include New York, Connecticut, Massachusetts, Vermont, Maine, Maryland and Delaware. Pennsylvania continues to impose an inheritance tax.

With the potential for changes in estate tax law coming from both the federal and state level, it is well worth keeping estate planning on our radar screen. New estate tax laws may mean the need for a minor clarification adjustment to a will or a completely new approach to ensure your wishes are carried out in the most tax-efficient manner.

Leave a Reply

Your email address will not be published. Required fields are marked *