When Must New Jersey

Death and Inheritance Taxes

Be Paid When Administering a

New Jersey Trust?

New Jersey Inheritance Tax

New Jersey imposes a transfer inheritance tax, at graduated rates, on property having a total value of $500.00 or more which passes from a decedent to a beneficiary. Property passing to a surviving spouse, civil union or domestic partner, parents, grandparents, children, stepchildren or grandchildren is exempt from the tax. All other beneficiaries (except qualified charitable organizations) are subject to NJ inheritance tax.

In addition to the inheritance tax, New Jersey imposes a separate estate tax. An estate may be subject to NJ estate tax even though there is no inheritance tax payable.

A New Jersey Estate Tax Return must be filed if the decedent's gross estate plus adjusted taxable gifts as determined in accordance with the provisions of the Internal Revenue Code in effect on December 31, 2001 exceeds $675,000.00. It must be filed within nine months of the decedent's death.

Additionally, a copy of any Federal estate tax return filed or required to be filed with the Federal government must be submitted within 30 days of the date it is filed with the Internal Revenue Service and a copy of any communication received from the Federal government must be submitted within 30 days of its receipt from the Internal Revenue Service.

Federal Estate Tax as Part of New Jersey Trust and Estate Administration

A federal estate tax return generally must be filed with the Internal Revenue Service for the estate of every U.S. citizen or resident whose gross estate, taxable gifts and specific exemptions exceed 3.5 million dollars for decedents dying in 2009 and after. The Federal government does not collect an inheritance tax.

The Income Tax Implications of Trusts in New Jersey

There are significant income tax implications for trusts. The implications for these trusts vary, depending upon the type of trust. Trusts that are required to distribute all their income in the present year (simple trusts) are taxed differently from trusts that are not required to distribute all of their income in one year (complex trusts).

For tax purposes, both the trust and the trust beneficiary are separate entities. Thus, it is possible that the trust may have to file an income tax return and pay income tax in the same year that the trust beneficiary does. Both the trust and the trust beneficiary would pay income tax on the amount of taxable income retained or distributed to each.

The trust beneficiary is taxed on income that is required to be distributed to the beneficiary, regardless of whether the income is actually received. If the income accumulates in the trust and is retained by the trust, the trust pays the income tax on it. When the trust passes the income to the beneficiaries, the trust received a distribution deduction and the beneficiaries must pay the tax on the distribution.

New Jersey Trusts and Estate Tax Liability

Generally, when a person establishes a revocable living trust in New Jersey, he or she should understand that the assets in such a trust are still included in the gross estate. Because the grantor can terminate the trust at will, or revoke it at any time the grantor is dissatisfied with the operation of this trust, the grantor possesses "incidents of ownership” over the trust and its assets and. Thus, this trust is used primarily for its flexibility and not as a necessary estate tax strategy.

With certain exceptions, the creation of an irrevocable living trust will successfully remove the property placed in the trust from the gross estate of the grantor. An irrevocable living trust constitutes a total completed gift of the property placed in such a trust, and the grantor has made a complete severance of all rights and interests in the property. Where this has occurred, the property placed in the trust and all future appreciation of it are removed from the gross estate of the grantor.

Gift Tax Implications of Trusts

In general, a revocable trust is not considered a taxable gift because the grantor has not parted with legal ownership control over the property. Thus, a revocable trust will not be subject to gift tax liability. However, because the grantor has not parted with ownership of the property it will be included in the grantor’s gross estate, even if the trust is a life insurance trust.

An irrevocable living trust however, will normally result in some form of a gift tax liability. The gift is the fair market value of the property at the time it is transferred into the trust, not its value at the date of the grantor’s death. Thus, if the grantor has property that is highly appreciable in nature, it might be a good idea to transfer the property into the irrevocable living trust in order to avoid having the future appreciation included in the gross estate of the grantor.

NJ Trust lawyers serving these New Jersey Counties:

Monmouth County, Ocean County, Essex County, Cape May County, Mercer

County, Middlesex County, Bergen County, Morris County, Burlington County,

Union County, Somerset County, Hudson County, Passaic County

NO REPRESENTATIONS

This material may contain technical or typographical errors. Fredrick P. Niemann, Esq. does not guarantee its accuracy or completeness or suitability.  IN NO EVENT SHALL Fredrick P. Niemann, Esq. BE LIABLE FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES RELATING TO THIS MATERIAL, FOR ANY USE OF THIS PUBLICATION.  Fredrick P. Niemann, Esq. takes no responsibility and makes no warranty whatever for the content or information contained herein.

Inheritance Taxes in NJ | Administering a New Jersey Trust |

New Jersey Trust Lawyer