New Jersey Estate Planning and New York Estate Planning: 10 Differences To Know

Whether you need to do estate planning in New Jersey or estate planning in New York, estate planning is one of the most important things you can do to protect your legacy and your loved ones who stand to inherit your assets when you pass on. Planning one’s estate, however, can be complicated for a layperson. State and federal laws come into play that require a knowledgeable estate planning attorney to interpret so they may draft the legal documents that comprise your estate plan accordingly and ensures its validity.  

Many residents of the tri-state area own assets in more than one state and often inquire if it would be wise to change their state of residency when they retire to avoid potential estate and inheritance taxes by their current state once they pass on. Although our estate planning attorneys will highlight the distinctions, below are some differences in New York estate planning and New Jersey estate planning laws that you should be aware of when planning your estate.

New Jersey Estate Planning and New York Estate Planning Differences: Estate Tax and Inheritance Tax

Estate tax is a tax imposed on the estate of the decedent. Inheritance tax is paid by the beneficiary receiving the distribution from the estate. New York estate planning and New Jersey estate planning laws regarding these taxes are as follows:

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1. The state of New Jersey no longer imposes an estate tax. It was suspended as of January 1, 2018. This law also eliminated the tax on real and tangible personal property of a non-resident decedent. However, this is subject to change due to the state’s fiscal issues, and this possibility should be kept in mind when planning your estate. New Jersey residents are only subject to paying a federal estate tax if their estate is valued at over $12.06 million when they die.

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2. When it comes to New Jersey estate planning, New Jersey does have an inheritance tax, but it does not apply to heirs that fall under the category of Class A beneficiaries. Class A beneficiaries include the decedent’s spouse, children, parents, or grandparents. Charitable institutions, which are included in the Class E category, are also not subject to the tax. However, Class C beneficiaries are subject to the tax. These beneficiaries include siblings of the decedent, a son- or daughter-in-law. In addition, nieces, nephews, aunts, uncles, friends, and non-relatives fall under the category of Class D beneficiaries, and they are also subject to the tax.  

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3. When factoring in New Jersey estate planning, it’s important to remember that New Jersey excludes life insurance proceeds from inheritance tax if they are payable to a named beneficiary. If they are paid to an estate, and the proceeds get distributed to non-Class A or E beneficiaries as an estate asset, they are subject to the New Jersey inheritance tax. Rules for taxation on retirement accounts vary and are determined by type and beneficiary class. However, if the account is a traditional IRA, proceeds are exempt from inheritance tax if paid to a named Class A beneficiary, but distributions may be subject to federal and state income taxes. Depending on the beneficiary’s class/relationship to the decedent, tax consequences maybe avoided if these funds are rolled into an inherited IRA and distributed within ten years.

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4. As part of your New Jersey estate planning, keep in mind that New Jersey does not impose a gift tax.

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5. When doing New York estate planning, remember, the state of New York imposes an estate tax on the transfer of property from any deceased individual who was either a New York state resident or owned real or tangible personal property in the state at the time of their death, provided their assets exceed $6.11 million as of 2022. The amount is adjusted for inflation annually. While an estate is fully exempt from New York estate tax if it falls below that threshold, an estate’s value that exceeds $6.11 million by more than 5% ($6,415,000 in 2022) loses the exemption, and the full value of the assets are subject to New York estate tax. Because of this drastic drop in estate tax protection for estates valued over the New York threshold, the New York estate tax is often called a “cliff tax”. Estates that fall between the threshold amount and the 5% percent excess will be partially subject to New York estate tax. A maximum estate tax rate of 16% is imposed on estates that exceed $10,100,000. This does not include cooperative apartments, as they are not considered real property.

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6. As part of New York estate planning, the state does not impose an inheritance tax.

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7. New York does not impose a gift tax.

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8. New York does not have a generation-skipping transfer tax.

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9. New York does not impose any tax on life insurance proceeds.

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10. Several crucial details not included here can be discussed with your estate planning attorney in greater detail as they pertain to your circumstances.

New York Estate Planning and New Jersey Estate Planning: Planning a Change in Domicile?

Changes in tax laws create opportunities to reevaluate your estate plan and take advantage of potential savings by making adjustments. If you are planning on changing your state of residence to protect your estate and avoid costly taxation that can diminish its value, it is wise to consult a qualified estate planning attorney. A legal advisor can confirm which decision is in your best interests and assist you in taking all the necessary steps to effect the changes. Schedule your consultation with BMC Estate Planning to review your estate plan and determine what would be most advantageous to you, your estate, and your loved ones who will inherit your generous gifts that will benefit future generations.

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