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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4503
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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1)Regarding the state of New Jersey,what is the difference

Resolved Question:

1)Regarding the state of New Jersey,what is the difference between the NJ Estate Tax and the NJ Inheritance Tax? Under what situation does each apply?
2)Again, regarding the state of NJ, what are the rules pertaining to gifting? Do they have a 3 year look back provision like the federal rules have? Once a completed gift is made , when is it considered outside the donor's estate for NJ taxing rules?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Lane :

First an estate tax is just that... a tax on the estate of the person who has died (to be paid BY the estate) before distribution to those that inherit (the heirs, or beneficiaries)...a death tax calculated based on the net value of property owned by a deceased person on the date of death.



In inheritance tax, is a tax on what IS INHERITED by someone (paid BY the person that has received something FROM an estate), ...a death tax that is calculated based on who receives a deceased person's property.





Regarding INHERITANCE tax in Mew Jersey:





New Jersey imposes a transfer Inheritance Tax, at graduated rates, on property having a total value of $500 or more which passes from a decedent to a beneficiary. Generally, an inheritance tax return must be filed and the tax paid on the transfer of real or personal property within eight months after the death of a decedent. Property passing to a decedent's surviving spouse, parents, grandparents, children, stepchildren or grandchildren is entirely exempt from the tax. If a decedent's death occurs on or after February 19, 2007, property passing to a decedent's surviving civil union partner is entirely exempt from the tax. If a decedent's death occurs on or after July 10, 2004, property passing to a decedent's surviving domestic partner is entirely exempt from the tax."





Regarding ESTATE tax in New Jersey:





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. It must be filed within nine months of the decedent's death (nine months plus 30 days if the Form 706 method is used).

Lane :

N. J. S. A. 54:34-1, NJ ST 54:34-1

Current with laws effective through L.2013, c. 165 and J.R. No. 11.




N.J. Stat. Ann. § 54:34-1 (West)

Customer:

How does the state on NJ treat gifts? Are they pulled back into the estate value calculation? Is there a time limit as with the federal gifting rules whereby it is not considered part of the estate? What estate tax rates apply when the beneficiaries are the children of the deceased?

Lane :

Let me pull that for you

Expert:  Lane replied 1 year ago.

Sorry Robert, I was closing up another questions and we were transferred to the Q&A mode .. we can still continue our dialogue here, however.

Let me pull the rates and the NJ Law

Lane
Customer: replied 1 year ago.

ok, take your time, I just want to get it right.


 


thanks

Expert:  Lane replied 1 year ago.

As long as the all of elements of a gift are there, they are not pulled back:

Requisite elements of a valid “inter vivos gift” are: (1) an unequivocal donative intent on part of donor; (2) an actual or symbolic delivery of the subject matter of the gift; and (3) an absolute and irrevocable relinquishment by donor of ownership and dominion over subject matter of gift, at least to extent practicable or possible, considering nature of articles to be given.

In re Dodge, 234 A.2d 65 (N.J. 1967)



And in terms of the ESTATE rates?

Did you mean inheritance? The estate tax is the same regardless of any beneficiaries (because the estate tax, as we mentioned above, is charged against the estate)- except that there IS a 100% pass-through for spouses.

For the INHERITANCE tax, however;

Children are CLASS A beneficiaries, and therefore exempt from inheritance tax

From: Inheritance Tax Resident Return

CLASS “A” TRANSFEREES ARE ENTIRELY EXEMPT
IN ESTATES OF DECEDENTS DYING ON OR AFTER JULY 1, 1988

If you do need the estate tax rates (again charged against the estate, regardless of beneficiary (with the exception of spouse)

See page 10 of the NJ estate tax return: IT-Estate

Lane


Customer: replied 1 year ago.

Just to make sure I understand what you wrote. If there is an estate valued at $1,500,000 and the Donor makes completed gifts to her children in the amount of $800,000 ,then dies the next day , the estate (for NJ estate tax purposes would be valued at $700,000 and tax would be due on $25,000($700,000- $675,000). Is this correct?


I have looked at page 10 of the NJ estate tax return and I am confused by the tax associated with the ranges, Where does this table take into account the $675,000 exemption? It appears as if taxes are applied on values over $615,000. Please clarify.

Expert:  Lane replied 1 year ago.

Hi Roger .. just to get you something quickly ... yes, you are correct in the computation.

Further, I have seen SEVERAL times from SEVERAL resources that the exemption is 675,000.

I have to wonder if that 615,000 number has been indexed ... What's really strange is that the return we're looking at comes from NJ dept of taxation's site.

Let me continue to dig on this

I'll post here as soon as I can reconcile this for you.

Lane
Customer: replied 1 year ago.


What do you expect from government work? Let me know what you find out.


 


Bob

Expert:  Lane replied 1 year ago.


Got it.

If you look at the table ... it starts with "Amount from line 3 above"

And line three is the result of taxable estate MINUS a $60,000 exemption.

615 + 60 = 675

... pay attention Lane

It's a smaller table just above the one we were looking at

:)

Customer: replied 1 year ago.

I saw that as I was awaiting your response. Page 10 rates appear to apply to filing a "Simple Form" as there appears to be a $60,000 exemption amount. Is there a "Long Form" rate schedule?

Expert:  Lane replied 1 year ago.

This is the only form estate form ... IT-Estate:

From here: http://www.state.nj.us/treasury/taxation/prntinh.shtml

An here's their main form page, which take you to there.

http://www.state.nj.us/treasury/taxation/taxprnt.shtml



The taxable value of the estate using the Simplified Tax System method is the net estate as determined and reflected on line 7 of the New Jersey inheritance tax return (Form IT-R) adjusted to reflect certain items.

The IT- Estate tax form is the estate tax form.


Customer: replied 1 year ago.

The figure on line 7 from the NJ inheritance tax return would not come into play in this case, since all the beneficiaries are children of the "future" deceased, correct? or do you need to complete it , even though no tax is due so you have certain figures which then get transposed onto the Estate Tax return?


In looking at the NJ Estate Tax Return there are 2 methods by which one can calculate the NJ Estate Tax:



1) Column A - Simple Form


2) Column B - Form 706(2001)


 


Is one free to choose a method or are there qualifiers that direct you a specific method? In addition the second method uses figures from the Federal Form 706, If you do not file form 706 are you then


compelled to file under the Simple Method( Column A)?


 


Furthermore, in looking at page 1 of the NJ Estate Tax return, lines 1 and 2 reference form IT-R , can you provide a link to this form?


Line 5 on this page references Schedule E-2 which wants you to list "transfers within 3 years of death not included or part of Line 3a of the IT-Estate Return. This appears to be adding back gifts made within 3 years and making them part of the taxable estate. Am I misreading this? and if so where and how?


 


Thanks,


 


Bob


 

Expert:  Lane replied 1 year ago.

The figure on line 7 from the NJ inheritance tax return would not come into play in this case, since all the beneficiaries are children of the "future" deceased, correct? or do you need to complete it , even though no tax is due so you have certain figures which then get transposed onto the Estate Tax return?

 

The children are exempt, as class A beneficiaries... the inheritance tax form is just used to calculate the "SIMPLE" method for calculating the ESTATE tax, when no federal 706 is done.

 

 

 

.

In looking at the NJ Estate Tax Return there are 2 methods by which one can calculate the NJ Estate Tax:

 

 

 

1) Column A - Simple Form

 

2) Column B - Form 706(2001)

 

 

 

Is one free to choose a method or are there qualifiers that direct you a specific method? In addition the second method uses figures from the Federal Form 706, If you do not file form 706 are you then

 

compelled to file under the Simple Method( Column A)?

 

The Director has prescribed a Simplified Tax System method pursuant to the provisions of the revised statute. This method may only be used in those situations where a Federal estate tax return has not and will not be filed nor is a tax return required to be filed with the Internal Revenue Service. The Simplified Tax System is not intended for use in all estates. Any attempt to develop a tax system which could be used in all situations and which would produce a tax liability similar to that produced using the Form 706 method would, of necessity, result in a tax system as complex as the Federal tax itself. The Simplified Tax System requires that a Form IT- Estate be prepared and filed along with a New Jersey inheritance tax return (Form IT-R) completed in accordance with the provisions of the inheritance tax statute in effect on December 31, 2001.

 

 

 

Furthermore, in looking at page 1 of the NJ Estate Tax return, lines 1 and 2 reference form IT-R , can you provide a link to this form?

 

Inheritance Tax Resident Return

 

from: http://www.state.nj.us/treasury/taxation/prntinh.shtml

 

 

 

Line 5 on this page references Schedule E-2 which wants you to list "transfers within 3 years of death not included or part of Line 3a of the IT-Estate Return. This appears to be adding back gifts made within 3 years and making them part of the taxable estate. Am I misreading this? and if so where and how?

 

My apologies, this IS correct, although others have contested. From a tax administration standpoint, the department has proscribed that it be added back.

 

AND (may be stating the obvious now) ... the estate tax form IS the simple method .. Using the federal 706 is the method to be used when a federal 706 is needed.

 

The estate tax form is used either way (transferring from the 706, when a 706 is needed ... transferring from the inheritance tax form - the simple method - when no 706 is needed)

 

 

... sorry it took us tis long to get here.

 

 

Customer: replied 1 year ago.

I just read that taxable gifts are pulled back in the NJ Estate Value calculation, therefore, gifts of $14,000 /year or less would not be pulled back for NJ? Would you agree with this?

Expert:  Lane replied 1 year ago.

Yes.

Gifts under the annual exclusion are not taxable gifts.

If you are looking back, the exclusion has not always been 14,000.

But if you are trying to project forward, 14,000 is the data we have.

Annual gift tax exclusion has not been indexed, as the estate tax exemption has.
Customer: replied 1 year ago.

Thanks, XXXXX XXXXX it for now

Expert:  Lane replied 1 year ago.

YW Bob.

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.

HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Thanks
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4503
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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Lane
Lane
JD, MBA, CFP, CRPS
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Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986