Don't Be Lulled into a False Sense of Security by New Jersey Tax Reform Talk
- On April 25, 2016
The week of April 18, 2016 found the New Jersey Legislature in session trying to determine how to squeeze the residents of the State of New Jersey for more money through “tax reform.” Chief among those “reforms” was an increase in the gas tax to support the New Jersey Transportation Trust Fund. A fund previously fleeced by the Legislature.
One of the new proposals being discussed between both parties is an increase in the gas tax and a phase out the estate tax over a period of five (5) years. The phase out would begin starting at a $1 million exemption in 2017 to full repeal in 2021. It might also include an increase in the exemption for retirement income from pensions, 401k plans, annuities and IRA’s. The so called “pension exemption” would increase the single exemption from $15,000.00 to $75,000.00 and from $20,000 to $100,000.00 for couples filing jointly. It appears the plan is to convince New Jersey residents to stay in the state longer to fund the New Jersey Transportation Trust Fund and other tax regimes. Clearly an effort to be less reliant only on grandparents.
Nevertheless, do not be lulled into a false sense of security that your estate will not be taxed because the exemption is going to increase. No one can predict how long they will live, nor how large their estate may be at the time of their death. Moreover, the government has a knack for eliminating an estate tax and then reinstituting it. The Federal estate tax has been repealed several times and it still exists. In fact, the last period of repeal was a few years ago. Just after the statute reached full repeal, it was reinstated and an option was given to estates to be administered under either law. While that may sound somewhat strange, there were certain provisions in the repeal statute that would have been a disadvantage to estates with low basis property.
While it is encouraging to see that the New Jersey estate death tax may be eliminated or the exemption raised in the State of New Jersey one must be mindful of the revenue deficits the state faces. Until such time as it has actually happened, one should continue with a vigilant plan that provides enough flexibility at any level of exemption or even repeal.
Author: Robert F. Munoz