Overview of New Jersey Estate Tax Laws

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Understanding How New Jersey Estate Taxes Affect an Estate
By Julie Garber, About.com Guide

NOTE: State laws change frequently and the following information may not reflect recent changes in the laws. For current tax or legal advice, please consult with an accountant or an attorney since the information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.

In addition to a state inheritance tax, New Jersey also imposes a separate state estate tax which has been decoupled from the federal estate tax laws. Here is a summary of the current New Jersey estate tax laws.

When is a New Jersey Estate Tax Return Required to be Filed?

A New Jersey estate tax return, Form IT-Estate, must be filed if the decedent's gross estate plus adjusted taxable gifts exceeds $675,000. How is the New Jersey Estate Tax Calculated?

The New Jersey estate tax is either the maximum credit for state inheritance, estate, succession or legacy taxes allowable under the provisions of the Internal Revenue Code in effect on December 31, 2001 (this is called the "Form 706 Method"), or an amount determined pursuant to the Simplified Tax System prescribed by the Director, Division of Taxation (this is called the "Simplified Form Method").

The Form 706 Method must be used if the taxpayer is required to file a federal estate tax return, IRS Form 706.

If the taxpayer isn't required to file IRS Form 706, then, in addition to the Form 706 Method, the Simplified Form Method may be used provided that it produces a tax liability similar to the Form 706 Method.

When is the New Jersey Estate Tax Return and Any Payment Required Due?

Form IT-Estate must be filed and any tax due must be paid within nine months of the decedent's death, or nine months plus 30 days if the Form 706 Method is used.

An extension of time to file Form IT-Estate may be requested, however, even if an extension is granted it won't delay the time for payment of any tax due.

The Form 706 Method requires that Form IT-Estate be prepared and filed along with a 2001 IRS Form 706. This is in addition to IRS Form 706 for the year of the decedent's death if one is required to be filed. Where is the New Jersey Estate Tax Return Filed?

Mail the New Jersey estate tax return, Form IT-Estate, and all other required forms to:

NJ Inheritance Tax and Estate Tax
P.O. Box 249
Trenton, New Jersey 08695-0249

What is the New Jersey Estate Tax Rate?

The tax rate is a progressive rate that maxes out at 16% for the amount above $10,040,000.

Are Transfers to a Surviving Spouse Taxable?

Outright transfers to a surviving spouse are not taxable.

For married couples who have used AB Trust planning to reduce their federal estate tax bill, a New Jersey estate tax may be due on the B Trust after the first spouse's death if there is a gap between the New Jersey estate tax exemption and the federal estate tax exemption at the time the federal estate tax comes back into effect. A married decedent's estate is authorized to make an election on Form IT-Estate to treat property as marital deduction qualified terminable interest property ("QTIP") for New Jersey purposes, but married New Jersey couples cannot defer payment of both New Jersey estate taxes and federal estate taxes until after the death of the surviving spouse using an ABC Trust scheme.

Are Transfers to a Surviving Domestic Partner Taxable?

Federal estate tax laws do not have a provision providing a deduction for property passing to a domestic partner. However, if a New Jersey decedent was a partner in a civil union and died on or after February 19, 2007, and was survived by his or her partner, then a marital deduction equal to that permitted to a surviving spouse under the provisions of the Internal Revenue Code in effect on December 31, 2001, is permitted for New Jersey estate tax purposes.

Does New Jersey Impose a Lien on the Deceased Person's Property?

For New Jersey decedents dying after December 31, 2001, the New Jersey estate tax remains a lien on all property of the decedent as of the date of death until paid. No property may be transferred without the written consent of the Director of the Division of Taxation.

Where Can I Find Additional Information About New Jersey Estate Taxes?

For more information about New Jersey estate taxes, refer to New Jersey Inheritance and Estate Tax General Information on the New Jersey Division of Taxation website.

Overview of Hawaii Estate Tax Laws

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Understanding How Hawaii Estate Taxes Affect an Estate
By Julie Garber, About.com Guide

If you live in Hawaii, then you live in one of a handful of states that still collect a local death tax. The estates of Hawaii residents, as well as the estates of nonresidents who own real estate and/or tangible personal property located in Hawaii, are subject to a local death tax under the following guidelines.

NOTE: State and local laws change frequently and the following information may not reflect recent changes.  For current tax or legal advice, please consult with an accountant or an attorney since the information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.

When is an estate subject to the Hawaii estate tax?

In 2013, an estate of a resident of Hawaii, or a nonresident of Hawaii but U.S. resident or citizen, is taxable in Hawaii and a Hawaii Estate Tax Return, Form M-6, is required to be filed if the taxable estate (determined using IRS Form 706, Part 2, line 3a) is $5,250,000 or greater. Nonetheless, if the decedent is survived by a spouse and the spouse is allowed to claim an election for transfer, or "portability," of the deceased spouse’s unused estate tax exclusion amount, then a Hawaii Estate Tax Return must be filed to make the election. See more on portability below.

The estate of a nonresident of the U.S., not a U.S. citizen, is taxable and a Hawaii Estate Tax Return is required to be filed if the taxable estate (determined using IRS Form 706-NA, Part II, line 1) is $60,000 or greater.

What Hawaii estate tax forms must be filed?

The personal representative or other fiduciary representing an estate that is subject to the Hawaii estate tax must complete and file the Hawaii Estate Tax Return, Form E-1.

Additional documents that must be filed with the Hawaii Department of Taxation when a Hawaii Estate Tax Return is required to filed are as follows: ◾IRS Form 706 (for the year of death) completed through Part 2, line 12, or IRS Form 706-NA completed through Part II, line 8 ◾All federal schedules with federal Forms 712, as required ◾Death certificate ◾Will ◾Trusts ◾Power of appointment documents ◾A copy of another state’s estate tax return or foreign estate tax return, if the estate is subject to other estate taxes ◾Any valuations or appraisals

Note that for estates that are not required to file a Hawaii Estate Tax Return, the personal representative or person(s) in possession, control, or custody of the decedent's property must file a Request for Release, Form M-6A, with the Department of Taxation if the agent wishes to obtain a release which indicates that the personal representative or person(s) in possession, control, or custody is/are free from taxes under chapter 236E, Hawaii Revised Statutes (HRS).

Are transfers to a surviving spouse taxable?

Outright transfers to a surviving spouse are not taxable.

For married couples who have used AB Trust planning to reduce their federal estate tax bill, since the Hawaii estate tax exemption equals the federal estate tax exemption, a Hawaii death tax will not be due on the B Trust after the first spouse's death since there will not be a gap between the Hawaii exemption and the federal exemption.

Are transfers to a civil union partner taxable?

On January 1, 2012, civil unions became recognized in Hawaii. Civil unions entered into in a jurisdiction other than Hawaii are also recognized, provided that the relationship meets Hawaii’s eligibility requirements, has been entered into in accordance with the laws of the other jurisdiction, and can be documented. Hawaii law provides the Internal Revenue Code (IRC) sections and provisions referred to in Hawaii’s estate and generation-skipping transfer tax Laws that apply to a husband and wife, spouses, or person in a legal marital relationship will apply to partners in a civil union with the same force and effect as if they were “husband and wife”, “spouses”, or other terms that describe persons in a legal marital relationship.” Accordingly, references to “married”, “unmarried”, and “spouse” also means “in a civil union”, “not in a civil union”, and “civil union partner”, respectively.

Is portability of the Hawaii estate tax exception allowed between spouses?

Yes, but portability of Hawaii's estate tax exemption applies only to decedents who die after January 25, 2012 and who were U.S. residents or U.S. citizens and validly married on the date of death (including Hawaii civil unions or the equivalent) and to nonresidents of U.S., not U.S. citizens, where allowed by any applicable treaty obligation of the United States.

What is the Hawaii estate tax rate?

The Hawaii estate tax rate is a progressive one that starts out at 5% and tops out at 16%.

When are the Hawaii estate tax return and tax payment due?

The Hawaii Estate Tax Return, Form M-6, must be filed, and any estate tax due must be paid, within 9 months of the decedent's date of death. An extension of time to file the Hawaii Estate Tax Return does not extend the time to pay any tax due.

An extension to file the Hawaii Estate Tax Return, Form M-6, is based on the federal extension to file the federal estate tax return. Hawaii does not have a separate extension form, but an automatic six-month extension to file Form M-6 will be granted if: 1.A copy of the IRS approved extension to file the federal estate tax return, IRS Form 4768, is attached to Form M-6; and 2.Form M-6 is filed by the due date specified by the IRS for filing the federal estate tax return.

Where are the Hawaii estate tax return filed and tax payment made?

Mail all required forms and any payment due to:

Hawaii Department of Taxation
P.O. Box 259
Honolulu, Hawaii 96809-0259

Where can I find additional information about Hawaii estate taxes?

For more information about Hawaii estate taxes, refer to the Department of Taxation's website: Hawaii Department of Taxation.

You may call customer service at 808-587-4242 or toll free at 1-800-222-3229; Telephone for the Hearing Impaired at 808-587-1418 or toll free at 1-800-887-8974; or send a fax to 808-587-1488.

You may also email the department at Taxpayer.Services@hawaii.gov

Correspondence may be mailed to:

Taxpayer Services Branch
P.O. Box 259
Honolulu, HI 96809-0259

Does Hawaii collect an inheritance tax?

Does Hawaii collect a local inheritance tax, which is a tax assessed against the share received by each individual beneficiary of an estate as opposed to an estate tax, which is assessed against the entire estate? The answer to this question is No, Hawaii no longer collects a state inheritance tax because it was replaced with a state estate tax under "The Estate and Transfer Tax Reform Act of 1983."

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Those Who Don’t Know Exactly What a Trust Is – Class 101

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The "Living Trust" term comes from the Latin "Inter Vivos" which means "during life". This phrase is used to refer to the making of a gift while a person is still alive, unlike a bequest in a will. So a Living Trust or Inter Vivos Trust is a property controlling entity that is created and goes into effect while you are still alive, and will remain as long as you want it to, after your demise.

Trusts date back to the days of European Kings and conquerors during the Middle Ages. It seems that when a knight went off to fight in faraway lands for his King, the very same King often had the bad habit of taking over the management of any property owned by the knight. Eventually, the King would claim ownership of the property, considering it as payment for the management services rendered. Since some of these wars lasted for many years, the knight would come to nothing!

But, when the knights discovered Inter Vivos Trusts and placed their property in them before going away to war, they secured greatly enhanced asset and property protection. The Trust was an organized, legal vehicle complete with an appointed Trustee. Back then, the church was the Trustee of choice for the best chance of getting the property back later.  This Trustee was given the responsibility and power to manage the property and defend it from any claims of abandonment or other false claims the government might have made against it.

Eventually, the concept of the Living Trust migrated across the Atlantic. In 1765, Patrick Henry (who was not a lawyer) became the first to write a Living Trust in the New World. The Trust was written for Robert Morris, Governor of the Virginia colony. Interestingly, his Trust, the North American Land Company, is still operational today!

However, for most of the history of the United States, Living Trusts were not very popular with the mainstream population. This was because in modern times (the birth of the IRS), a separate trust tax return was required each year for all Trust holders which is known as IRS Tax Form 1041. Fortunately in 1981, congress passed a law that allows all American taxpayers to draft a Trust and no longer be required to file a separate Trust tax return (as long as you remain competent and in charge of your trust estate). That opened up the floodgate for this very popular legal estate planning vehicle here in the United States. It is being utilized today by younger and younger generations. (I have written trusts for executives still in their 20's!)

Prior to this huge IRS tax law change the Living Trust concept was usually used only in cases of vast riches. You can bet that most of the past relatives of families such as the Kennedy's, Vanderbilt's, and Rockefellers, had either a Living Trust or a Testamentary Trust in their Will when they died. (A Testamentary Trust is just a trust that is born upon your death and controls your money and property for the sake of your surviving heirs.)

When the tax law first changed, people caught on pretty slowly. But the Living Trust revolution gained steam throughout the 80's and was at full pace by the early 90's. Sadly, in spite of the revolution, about 70% of Americans today still die intestate, meaning they have no Will or Trust in place to control their lifetime achievement - their estate!

And just as the Trusts of old protected the property of knights, placing your property into a Trust with someone in charge as Trustee does protect your assets for both a long term disability as well as for your eventual demise. It was a good idea back in the beginning when they first came onto the scene -- and it is just as good an idea today.

Today, properly signed and funded Living Trusts also protect you against high legal fees as long as you choose adequate (meaning trustworthy and financially smart) Trustees and appoint one or two backup Trustees. This will insure that someone will always be in charge, and thus court intervention can be prevented.

The Trust Portfolio of almost any Arizona practitioner also contains valuable Power of Attorney documents. If you don't have these documents, a court may order a Conservatorship in the event that you become disabled. In Arizona, a legal Conservatorship requires attorney representation and multiple court appearances each year until you either recover or die. During this time, you can expect continuous generous withdrawals from your checking account. Fortunately, this "living hell" money scenario can easily be avoided via a low cost properly executed General Durable Power of Attorney document in most cases.

In summary, a Living Trust allows professional management of your property when you are disabled or die. The rest of the coordinated legal documents in a modern Trust Portfolio protect you further from hefty legal expenses and court fees. Normally, this holds true even without invoking an official court declared "disabled" status.

This allows the agent you appoint on your Money Care Power of Attorney document to manage your affairs privately without the extra expense of legal representation required by the court as is the case in Arizona with a legal court Conservatorship. Also, it allows your medical power of attorney agent to represent you in all medical decisions when you can't make them.

Read This Column Before You Die

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The fear of death follows from the fear of life. A man who lives fully is prepared to die at any time. - Mark Twain

It can be both comforting and horrifying to think that our time on earth is a nano-blink of an eye, a sliver of time that passes slowly when tax forms are being prepared and quickly when the sun is shining.

Death is something we all try not to think about, yet it is our ultimate goal, the ending of every book, if life were an autobiography. We mostly shrug it off because, after all, we can’t avoid it.

But we can make the most of the inevitable. How? By planning ahead, not only for the sake of our families, but for ourselves. We’ve written before about the importance of making financial goals, but life goals are also essential. And, as with financial goals, you can’t meet them if you don’t have them.

The ultimate plan

Whether you’re getting on in age, have a terminal illness or are young and healthy, no one knows what will happen tomorrow, so prepare today. But what should your ultimate plan entail?

Make a "bucket list." The co-author of the book, "100 Things to Do Before You Die," died in an accident when he was 47. According to his writing partner, he had completed about half of his "to do" list when he died. Because he had a list and was determined to achieve his goals, he did many things he never would have done otherwise.

However, his co-author also noted that he traveled alone, so he could move through his list quicker. Sadly, the author missed an important point - it really isn’t about the list. Your list should be a guide to living life to the fullest. If you’re going through a list just to cross something off, why bother?

Whether you’re planning to go skydiving and want to visit the seven wonders of the world, like Jack Nicholson and Morgan Freeman did in "The Bucket List," or you have more modest goals, like learning a foreign language or cooking a gourmet meal, keep in mind that it’s important to savor the moment - and shouldn’t you be savoring the moment with a loved one or friend?

When you make out your bucket list, be certain that everything on it is something you can accomplish. Although you never know until you try, dating Angelina Jolie or winning an Olympic gold medal are about as realistic for most of us as winning the lottery. While it is important to believe in yourself, you need to know your limitations.

It’s also important to give your list some thought. Many of us don’t really know what we want. Sitting and planning out your life - and beyond - is not something you should do one day during your lunch break. Take your time and really think about what you want to do. Then develop a plan for achieving everything on your list.

Update your financial goals. Ideally, you could plan for retirement first and then plan for the next phase when you’re retired. But, since no one knows when the next phase will begin, you need to plan for it now.

What do you want to happen after you’re gone? Is there a charity you would like to help? Do you want to fund your grandchildren’s college education? Think beyond your retirement and write out your goals.

Plan your estate

Estate planning is not just for the very wealthy. It’s true that current law allows an exemption of assets worth up to $5 million from federal estate taxes, but in Massachusetts any estate with a value greater than $1 million is subject to estate taxes.

If you reside in Massachusetts and your estate exceeds $1 million in value, including the value of your home, your investment portfolio, your life insurance benefits and other assets, it will be subject to state taxation at a rate of up to 16 percent.

However, because Massachusetts has no gift tax, gifts can be made during your lifetime to reduce your taxable estate. It’s been said that death and taxes are the only certainties, but with careful planning, sometimes one of the two can be avoided.

Of course, there’s more to estate planning that reducing taxes. It’s also important to have a will, which determines how your property will be divided after your death. Without this essential legal document, your property may not be divided according to your intentions. Most likely, it will also become tied up in Probate Court and it may take years before your survivors have access to your assets.

Make certain you seek the assistance of an attorney with experience making out wills. Having a will that is not legally valid can be worse than having no will at all because it may be disputed. Also, be certain to update your will periodically.

Keep in mind that retirement accounts and life insurance policies are not covered by your will, as you designate beneficiaries when you sign a contract for these assets. Make certain that you have designated individuals you truly want to be your beneficiaries and you have not unintentionally excluded anyone, such as a child born after you initially designated your beneficiaries. Plan your legacy assets. Most people consider their financial assets in planning their estate. You also have accumulated many other assets during your lifetime. Some of the best assets are the memories of special events or family gatherings. Many of these are recorded photographically and able to be passed on to heirs.

However, the asset value of the wisdom garnered, the valuable experiences received, the life lessons learned, the appreciation of others that have helped you along the way are all assets available for sharing.

Similar to a will that administers your financial assets, you can prepare a separate letter, memoranda or formal ethical will to pass on to your family and others.

Get organized

Your death will likely be difficult on your family. You can ease the burden by planning your funeral and letting your wishes be known. Do you have a cemetery plot? Have you picked out a casket? Is there a charity to which you would like contributions sent?

If you take care of every detail, your children and your spouse won’t have to. Clean out your attic and your closet and get rid of unwanted items. Give away anything you won’t use. Go through your photos and organize them. Determine if you need to change their medium to an electronic format.

People often tell me that they do not want to be a burden to their children. It can be painful for your family to have to deal with these issues; dealing with them yourself will make it easier on them.

Also, be certain to choose an executor for your will. Talk to your executor and make certain that he or she has a true understanding of your wishes and will carry them out to the last detail. Many times writing a letter of instruction to your executor or trustee is helpful for those matters not easily handled by the formal document.

You may not care what happens after you die, but keep in mind that your decisions today will have an eternal impact and could affect how you are remembered.

Seek balance

Death and taxes may be inevitable, but the more time you spend preparing for either, the better the outcome is likely to be. If you were to die tomorrow, that would be tragic. The tragedy would be compounded, though, if your family had to deal with matters without knowing your wishes. Regardless, in the process of planning for the future, don’t forget to live for today. Carrying out your bucket list is more important - and more fun - than preparing it.

Ask yourself what you are doing today that you would change. Is your career fulfilling? Do you have a secret ambition, like writing a book or taking a special trip? Act on your passions and interests today, before it is too late. Plan for the future, but enjoy life today. Carpe diem!

Darrell J. Canby