On October 14, 2016, Governor Chris Christie signed new legislation repealing the state’s estate tax for those dying after January 1, 2018. As of January 1, 2017, the state’s estate tax exemption amount will increase from $675,000 (the lowest in the country) to $2,000,000, which means that the first $2 million dollars of the Decedent’s estate will pass free of state estate tax. As of January 1, 2018, the state estate tax will be eliminated entirely.

This new legislation provides a significant benefit to many New Jersey estates which could have otherwise owed a substantial amount of state estate tax upon the Decedent’s death. The estate tax, which is incurred on the basis of transfers on death to those other than a surviving spouse or charity, is calculated based upon the gross amount in the Decedent’s estate at death.

New Jersey is one of only two states that still impose an inheritance tax, which is distinct from the estate tax. The inheritance tax applies to property passing to a beneficiary other than a spouse, parent, grandparent, child, grandchild, or more remote descendant. The inheritance tax has not been repealed as a result of this legislation, and ranges from 11% to 16%. Thus, in 2018 and thereafter, a plan that leaves the entire estate to a spouse, charity and/or descendants will generate no transfer tax at all, but a plan that leaves assets to more remote relatives or non-family members will still generate a transfer tax.

We recommend that New Jersey residents with a current gross estate exceeding $675,000 contact an attorney to discuss the potential planning implications of this new legislation. Planning documents are often drafted in a way that is tied to tax exemptions. This can cause unintended consequences because of the estate tax repeal. For example, current plans which fund credit shelter trusts by formula should be reviewed so that the individual’s goals are accomplished and there is no unintentional disinheritance of a surviving spouse.