An estate plan directs where a person wishes their wealth and assets to go, such as to their loved ones, friends and charities after death (also known as, the decedent). However, there is another place the estate assets may be sent depending on the organization and size of an estate — taxes. New Jersey imposes an estate tax on estates of a certain size, and that cost can be significant for those who pass on.
The estate tax in our state may be as much as 16 percent of the value of the decedent’s estate. Certain items of property may be excluded from consideration though, and may include items of property that pass to the decedent’s spouse and those assets that transfer to new owners without every passing through the estate. The estate tax is different than the inheritance tax, which applies to certain beneficiaries of estates in our state.
Paying the estate tax is an important component of settling an estate and often must be paid within 8 months of the decedent’s passing. The administrator of the estate generally must file a tax return for the estate to determine what, if any, taxes are owed. The New Jersey estate tax exists separate and apart from the federal estate tax, which operates with its own specific rules.
As readers of this estate planning blog may know, the estate tax can decrease the size of a decedent’s estate and cut down on what beneficiaries may receive. In order to better understand the estate tax and its potential effect on one’s wealth, interested readers should understand these complexities prior to drafting estate planning documents.