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Thursday, February 17, 2011

Estate planning tips for New Jersey residents

New Jersey is a heavily taxed State and its estate tax is not directly linked to the Federal estate tax as of July 1, 2002. (10) This and other State tax regulations can affect estate values and estate derived income considerably. These regulations are contained with New Jersey Statute, Chapter and Case law, notably Title's 3A, 3B and 54 of New Jersey Statute law and Chapter 31 of New Jersey Chapter Law. These laws can be found and read at the New Jersey State Legislature website.

Since there are many estate regulations in New Jersey that can impact the management and value of an estate, a carefully planned estate may be necessary to optimize the estate's value and cost. This article will discuss key aspects of New Jersey estate planning, taxation and regulation. It will also provide tips to consider when planning around New Jersey estate regulations, as there are ways to plan an estate to minimize estate taxes and maximize estate objectives.

New Jersey estate planning considerations


The following section illustrates the potential taxes and noteworthy items that may affect an estate, in addition to estate or estate related requirements that can prolong or limit the receipt of an estate by beneficiaries of that estate. More regulations than can be covered in this article exist pertaining to New Jersey estate planning, however some notable aspects of such regulations are the following.

• $675,000 of a New Jersey estate's value is estate tax free (11)
• New Jersey compliant out of State wills filed in State are accepted (8)
• New Jersey inheritance tax returns are often required (3)
• Estate assets may require property release waivers (3)
• Safety deposit boxes and contents, are not "inventoried" by the State (3)
• Transferred retirement instruments can reduce immediate estate tax
• "Entity structuring" may afford liability protection from creditors (13)

• Inheritance tax 0%-16% (3)
• Estate tax: Determined from information on Federal Estate tax return (4)
• Property tax: Locally determined and based on market asset value (4)
• Income tax 1.4-8.97% (1)
• Gift tax 0% (15)

In light of the above factors, the following techniques may be helpful when planning an estate in New Jersey as clearly an estate tax strategy may be in order when planning a New Jersey estate. As with all estate planning, it can be a good idea to first determine the estate's goals and objectives prior to devising a strategy and putting together estate planning technique to accomplish such.

• To avoid default intestate estate transfer, complete a valid New Jersey will (2)
• A bypass trust may be useful if the estate's value is higher than State estate tax exemption, and will be transferred into two generations. (10)
• Make use of New Jersey's lack of gift tax to pass estate value prior to death
• Receive estate income distributions via annuity rather than lump sum
• Relocate and register real and tangible property to another State if possible
• Transfer non-necessary assets into tax protected financial instruments
• Maximize life insurance death benefits as they are tax-free (3)

Estate planning financial instruments


Several financial instruments and allowances may be beneficial when planning an estate. These instruments or allowances within the law can assist in maximizing exempt estate value, reducing tax, and increasing estate value either through higher retained value from lower management cost or improved estate management techniques. The following is a list of financial instruments and possibilities that may assist in the estate planning process. Since New Jersey is quite particular about estate values and inheritance, the use of specialized estate management tools may be wise.

• Retirement plans such as IRA's can be effective asset protection vehicles (14)
• A/B Trusts: Make use of estate holder and spouse's estate tax exemption (11)
• Life insurance: Cash value may be taxable whereas death benefit is not. (3)
• Asset protection trusts, and/or companies i.e. trust companies (14)
• Marital joint property (14)

Also included in estate planning are the records, especially State specific estate documents. These records or documents may include those listed below, some of which are available and/or viewable at the New Jersey Department of the Treasury, Division of Taxation website. Determining which documents are needed should ideally become apparent during the estate planning process.

The legality and effectiveness of these records can be validated by an attorney, notary, state official etc. Invalid documents and assets that aren't registered in a trusts name may cause an estate to go through probate or similar process, hence the importance of creating valid documents. Listed below are some documents that may be needed in New Jersey.

• Form L-8 and L-9 Real Property tax waiver
• IRS Form 706 required for New Jersey estates over $675,000
• New Jersey estate tax return, form IT-State
• Insurance proceeds, form O-71
• Estate corporation formation certificates and registration documentation

New Jersey estate planning preferences


Listed below are sources that may assist the reader in the New Jersey estate planning process. The information in these sources are referenced in this article. Since the estate planning process is diverse, and potentially complex, many considerations can come into play when planning an estate. For this reason consulting local estate planners trained and familiar with New Jersey estate regulations may be worth the cost and potential headache of not having planned correctly or overseeing certain aspects of the estate planning process.

Sources:

New Jersey estate planning:
(1) http://www.jerseyestateplanning.com
(2) http://research.lawyers.com/New-Jersey/Estate-Planning-in-New-Jersey.html

New Jersey tax information:
(3) O-10-C - General Information - Inheritance and Estate Tax (paste in internet browser)
(4) http://www.state.nj.us/treasury/taxation/index.shtml
(5) http://www.bankrate.com/brm/itax/edit/state/profiles/state_tax_NJ.asp

New Jersey estate laws:
(6) http://law.findlaw.com/state-laws/estate-planning-law/new-jersey/
(7) http://www.megalaw.com/nj/top/njprobate.php
(8) New Jersey State Statute(s)

New Jersey tax forms:
(9) http://www.state.nj.us/treasury/taxation/taxprnt.shtml

Additional New Jersey estate information:
(10) http://www.demaio.com/fs/articles/decouple.htm
(11) http://www.allbusiness.com/government/government-bodies-offices-regional-local/12362447-1.html
(12) http://www.oceancountygov.com/surrogat/guide.htm#a2

New Jersey Estate Law: Chapter 31 of New Jersey Public Laws of 2001, estate tax
(13) http://www.njleg.state.nj.us/2002/Bills/A2500/2302_I1.HTM
New Jersey asset protection: