When the Tax Cuts and Jobs Act raised the threshold for the amount of assets a person can hold before they are subjected to the federal estate tax, many people in New Jersey may have cheered. After all, now that a person can hold $11 million in assets as an individual or $22 million in assets as a married couple before being subjected to the federal estate tax, it may seem like most people do not have to worry that the federal government will take a sizable chunk of their estate upon their death.
And, for the most part, this is true. However, like many things in life, the good times do not last forever. Once 2025 rolls around, the threshold for the amount of assets a person can hold before they are subjected to the federal estate tax will plummet to around $5.5 million for individuals and around $11 million for married couples. This means that the estates of many of those who manage to survive to 2025 or beyond will be subjected to the federal estate tax whereas they wouldn't be had they died earlier.
This may not seem like a big deal. After all, most people in New Jersey do not consider themselves to be millionaires. But let's say that all an individual's assets -- including a home, savings accounts, retirement accounts, investments and more -- add up to $1 million. If the person's assets grow over time, it may be possible that once 2025 rolls around that $1 million could potentially grow to $5.5 million or more, thus subjecting the individual's estate to the federal estate tax.
So, those with a sizable estate will want to start planning now for the eventual sunset of the federal estate tax. While those of more modest means may not need to worry about the federal estate tax, those whose estates are larger should anticipate that while they may not be subjected to the federal estate tax now, they may be subjected to the federal estate tax if they die in or after 2025. Fortunately, estate planning attorneys can provide more information on the federal estate tax sunset and how to plan for it.