New Jersey Estate Planning Attorney Explains Estate Planning In the Midst of Uncertainty Regarding Tax Changes

Law Firm Newswire



Moorestown, NJ (Law Firm Newswire) July 17, 2012 –
Under current law, a federal estate tax is only assessed on an individual’s estate assets over $5,120,000.

Further, the concept of spousal portability is contained in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (TRUIRJCA). “Under portability, one spouse can leave any unused available exemption to a surviving spouse so that the surviving spouse has a double exemption; this is called the Deceased Spousal Unused Exclusion Amount, or DSUEA,” said Susan M. Green, an elder law attorney with Begley Law Group in Moorestown, New Jersey.

The surviving spouse will receive the benefit of the deceased spouse’s unused exemption in future transfers. Thus, in 2012, a married couple can protect up to $10,240,000 from federal taxes without any prior tax planning. However, in order to take advantage of the DSUEA, it is necessary to claim an election by timely filing an estate tax return upon the death of the first spouse.

In addition to a timely filing, this portability concept is further complicated because the DSUEA is defined as the lesser of either the basic exclusion amount (BEA), which is $5,120,000 in 2012, or the excess of the deceased spouse’s BEA. For example, if a deceased spouse left an available exemption of $5,000,000, but the surviving spouse passed away during a year when the estate tax exemption was only $1,000,000, the surviving spouse’s DSUEA would be reduced to $1,000,000, instead of $5,000,000.

Individuals can also gift up to $5,120,000 during their lifetimes without incurring tax. There is an annual gift tax exclusion of $13,000 per gift to an individual. If you gift more than $13,000 to any given individual in a calendar year, you will not incur tax until you reach your $5,120,000 lifetime exemption, but you will need to file a gift tax return. Individuals with large estates who plan to gift money to children and grandchildren during their lifetimes would be wise to do so before 2013.

If Congress does not act before 2013, the federal gift tax exemption, like the federal estate tax exemption, will fall to $1,000,000, thereby restricting gifting opportunities for wealthy individuals. Additionally, the tax rate will range from 41%-55%, in contrast to the current flat 35% rate.

Current New Jersey Law

The New Jersey estate tax law has not been modified. An individual’s estate will be taxed if it exceeds $675,000. In order for a married couple to protect up to $1,350,000 (the total of both spouses’ exclusion amounts) from the New Jersey estate tax, a disclaimer or credit shelter trust will be necessary.

In New Jersey, no state estate tax will be due on the death of the first spouse to die, but without a trust, all of the assets in the estate of the deceased spouse are included in the estate of the surviving spouse, and any amount over the limit is taxed on the second death. To remedy this, a will can specify that, upon the first spouse’s death, the maximum allowable exemption by law will pass into a credit shelter trust for the benefit of the surviving spouse.

By leaving to the trust an amount equal to the maximum New Jersey estate tax exemption, the New Jersey estate tax exemption of the first spouse to die is utilized and significantly reduces, or even eliminates, the taxes due on the death of the surviving spouse. Assets in the credit shelter trust are available to the surviving spouse to maintain his or her standard of living. Any assets which are in the deceased spouse’s name and which are above the state estate tax exemption will pass into a second trust, called a qualified terminable interest trust (QTIP), for the benefit of the surviving spouse.

The surviving spouse will have access to the income and/or principal of the trust. Upon the surviving spouse’s death, any assets that are held in the QTIP will pass subject to the terms and conditions of the will of the first spouse to die.

Alternately, if a couple wishes to maintain flexibility while also saving taxes, they can utilize wills with disclaimer trusts, which give the surviving spouse a “second look.” At the time of the death of the first spouse, the second spouse knows what the current tax law is and has a better idea of the amount of assets in the decedent’s estate. At that time, the surviving spouse can choose to take outright all of the assets that are in the name of the predeceasing spouse or, if there is a tax advantage, the surviving spouse can disclaim some or all of those assets into a disclaimer trust.

The amount disclaimed into the trust will not be included in the surviving spouse’s estate, but rather in the deceased spouse’s estate. The assets in the disclaimer trust are available to the surviving spouse for health, education, maintenance, and support and can be made available to descendants for the same purposes. If the proper amount of money is placed into the disclaimer trust, then the potential estate tax due at the death of the surviving spouse can either be eliminated or reduced.

If, at the death of the first spouse, the estate of the surviving spouse combined with the estate of the deceased spouse is less than the allowable exemption amount, then the surviving spouse may elect not to disclaim. The will of the first spouse would then effectively be the same as a simple will leaving everything outright to the surviving spouse.

Looking Ahead

There is much uncertainty as to what 2013 will bring with regard to tax law changes. If Congress does not act, the exemption will drop to $1,000,000. If Congress does act, the exemption could range from $1,000,000 to $5,120,000 or greater. Additionally, New Jersey imposes a tax on estates over $675,000. While it may be tempting to forego tax planning in hopes that the federal law will remain the same, the most prudent course of action is to consult an estate planning attorney to determine if a trust is appropriate for an individual’s estate plan.

To learn more about the Begley Law Group or to contact a New Jersey life care planning attorney, call 1.800.533.7227 or visit

Susan M. Green
Begley Law Group, P.C.
509 S. Lenola Road, Building 7
Moorestown, NJ 08057
Tel: 800.533.7227
Tel: 800.533.7227

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