Our accomplished New Jersey firm helps clients successfully navigate complex tax laws to minimize exposure and maximize the assets passed on to loved ones. Understanding and proactively planning for state and federal estate taxes is a critical component of a comprehensive estate plan.
The Federal Estate Tax is a tax on the right to transfer property at death. Critically, only estates whose value exceeds the Basic Exclusion Amount are subject to this tax. This exclusion is substantial, currently set in the millions of dollars (subject to change, especially after 2025).
Taxable Estates: The tax is calculated on the value of the estate above the exclusion limit.
Portability: The current law allows a surviving spouse to use any unused exclusion amount of the deceased spouse, a concept known as “portability.” This can effectively double the exclusion for married couples.
Note: The estate tax rules are complex and frequently subject to legislative change. Effective planning requires staying current with the law.
There are several effective, legally sound strategies our firm employs to help reduce your estate’s taxable value and liability.
You can reduce the value of your estate by making annual gifts during your lifetime. The law allows an annual exclusion amount (e.g., $17,000 as of 2024, subject to change) that can be given tax-free to as many individuals as you choose, without being subject to gift tax or counting against your lifetime exclusion.
Trusts are invaluable tools for tax planning. By transferring assets into specific types of irrevocable trusts, you can remove the assets (and any future appreciation on those assets) from your taxable estate. Common tax-reduction trusts include:
Irrevocable Life Insurance Trusts (ILITs): Used to hold life insurance policies outside the estate.
Grantor Retained Annuity Trusts (GRATs): Used to transfer appreciating assets to beneficiaries while retaining an income stream for a set period.
Structuring accounts as joint tenants with right of survivorship or utilizing Payable-on-Death (POD) or Transfer-on-Death (TOD) designations can ensure assets pass directly to beneficiaries outside of the probate process, potentially simplifying the estate and its value.
Assets transferred to a surviving spouse often qualify for the unlimited marital deduction, which allows for tax-free transfer, provided the recipient is a U.S. citizen. We can help you structure your plan to fully utilize this and other deductions.
Estate taxes—both state (if applicable) and federal—are paid by the Executor or Administrator of the estate, using the assets of the estate itself. The tax liability must be settled before the assets are distributed to the beneficiaries. The Executor is responsible for filing the appropriate tax returns and ensuring timely payment to avoid penalties.
The experienced attorneys at Frieri Law Group in Cranford guide you through the process of assessing your estate’s value, understanding potential tax exposure, and implementing strategic plans to safeguard your wealth.
Contact us today for a consultation to address your estate tax planning needs.