TaxEsqBlog -by Ronald J. Cappuccio, J.D., LL.M.(Tax)

New Jersey has long had the highest state estate tax in the country. Any estate over $675,000 would owe tax to the state of New Jersey. This could be very substantial and was a significant reason for many taxpayers, especially retirees, to move from New Jersey to more tax-advantaged states such as Florida. Tax lawyers, and estate planners, have been arguing for many years that this is really costing New Jersey a lot in revenue and negatively affects the state. Finally, after years of arguing, the New Jersey legislature passed a bill, signed by Governor Christie, that would reduce the New Jersey estate tax. Beginning January 1, 2017, only estates in excess of $2 million would be subject to the New Jersey estate tax. Starting January 1, 2018, if it is not repealed, the New Jersey estate tax would be eliminated. There was a lot of political wrangling in order to get this passed. There is a slight reduction in New Jersey sales tax rate, but not the fact that many items are tax New Jers...

Not surprisingly, Hillary Clinton is proposing to increase federal estate taxes from 40% to 45%. Right now, the rate starts at 40% for people who die with an estate, including all assets such as insurance, in excess of $5.45 million. Clinton has repeatedly stated she wants to reduce this exemption to a lower figure so more people have to pay tax and she now is revealing that she wants to also increase the estate tax rate. Many people forget that prior to President Reagan's estate tax reform in the 1980s, anyone within an   of $60,000 or more had to file a federal estate tax return and was subject to federal estate tax. This affected most people. As a result of the estate tax reform, very few people need to file federal estate tax returns. In states where the cost of housing is very high, lowering the exemption rate to $1 million would require many people to file estate tax returns with the IRS. Once again, instead of hearing about tax simplification and tax reduction, candidate...

Durable Power of Attorney-the Smart Choice! Today I received a frantic telephone call from the adult daughter of a senior citizen client for whom I prepared an estate plan 10 years ago.  Unfortunately, the man, who is a widower, had a serious stroke.  He is alive but is not communicative.  The daughter called and asked if I had prepared a Durable Power Of Attorney.  Even though I had prepared a Will and a Living Will, the client had insisted that he did not want a Power Of Attorney. Specifically, this client is a very private person and wanted to be in complete control of all of his assets.  I had suggested that we establish a Trust, with him being the Trustee and having one of his children as a Co-Trustee who could take over if he came incapacitated.  That was rejected. I suggested a Durable Power Of Attorney.  That was also rejected because he did not want anyone to have authority over his affairs.  I suggest that the Durable Power Of Atto...

A lifetime trust, also known as a living trust, can be the difference between people controlling their estate and being subject to the expense, confusion, and problems that sometimes affect unplanned estates. Nevertheless, a whole industry has grown around overselling living trusts when they are not really needed. Now, AARP and Kiplinger have gone in the other direction proclaiming that trusts are expensive and not needed. In the June 2013 Personal Finance issue, the newsletter gives really bad advice to avoid trusts. Frequently, as a tax attorney, I get a call from clients saying "what can we do with Mom's assets? She has dementia, and is being influenced by an acquaintance or family member to give them chunks of money." Unfortunately, it is too late. Unless the family wants to go to court with an expensive and embarrassing lawsuit to prove that their mom is incompetent, there is not much that can be done. If, however, when the signs of problems first started appea...

Starting in 2011 widows and widowers can add to their own estate tax exemption the unused exemption of the spouse who died most recently. This provision, plus an increase in the exemption amount to $5 million per person, enables married couples together to transfer as much as $10 million tax-free to their children or other heirs, either by making lifetime gifts or through estate plans. This 2-year provision expires January 1, 2013

Here is a detailed Explanation of the Estate and Gift Tax Changes: 2010 Estate Tax *Basic exclusion amount: $5,000,000 Formerly called applicable exclusion amount Unified credit: $1,730,800 *Maximum tax rate: 35% Level where 35% rate begins: $500,000 But no tax until taxable estate + gifts > $5m * Step-up in basis: Full step-up, unless estate elects out of estate tax State death tax deduction: Still available on Line 3b (as it was in 2005-2009) *Due date: No earlier than nine (9) months after date of enactment *Carryover basis: Applicable only if estate elects out of estate tax *Max basis increase available: $1.3m (plus $3m for property passing to spouse) *Due date of new form (8939): No earlier than nine (9) months after date of enactment Penalty for failure to report to the IRS: $10,000 per failure ...

Here is a quick summary of the new Estate Tax rates signed into law December 17, 2010 2010 Estate Tax Exclusion amount: $5,000,000 Maximum tax rate: 35% Carryover basis: Option to elect carryover basis instead of estate tax treatment Gift Tax Exclusion amount: $1,000,000 (no change) Maximum tax rate: 35% (no change) 2011-12 Estate Tax Exclusion amount: $5,000,000 Maximum tax rate: 35% Gift Tax Exclusion amount: $5,000,000 Maximum tax rate: 35% (no change)

The Democrats in the House are vowing to fight the Estate Tax exemption of $5m approved in the Senate. If no action is taken by December 31, the exemption will fall to $1m. Remember, this includes proceeds from Life Insurance policies, IRA's, pension plans, homes and real estate. Many estates will be heavily taxed (up to 55%.)

Congress has not fixed the Estate Tax. The current estate tax rate is 45 percent with an exemption level of $3.5 million for individuals and $7 million for couples. Unless something is done, in 2010 the rate and exemption level will fall to zero and then jump up to 55 percent and $1 million, respectively, in 2011.