Estate Planning In New Jersey

The primary purpose of estate planning is the get your financial assets in order to make sure your heirs are provided for. This includes planning for your golden years as well as what happens to your assets after you die.

One aspect of estate planning is avoiding the estate tax. The IRS defines the estate tax as a tax “on your right to transfer property at your death”. Basically, it is a tax on the net worth of the deceased individual. The 2016 exemption for the federal estate tax is $5.45 Million. This means that only someone who has assets valued at over $5.45 Million will be subject to tax.  Double that for a married couple.  This amounts to approximately 2 out of every 1,000 people. So the chances that you will be subject to the estate tax are very small.

State estate taxes are a different story. Especially if you live in New Jersey. The exemption for New Jersey’s estate tax is $675,000. This means that if your estate is worth more than $675,000, you will owe NJ estate tax. The estate tax rates in New Jersey can go as high as 16%.  Your gross estate includes any real estate you own, as well as bank accounts, investment accounts, vehicles, funds in retirement accounts, small business interests, and proceeds from insurance policies on your life.

Thus, it does not take much to be subject to the NJ estate tax.  Fortunately, NJ has a marital deduction for the estate tax which means that any amounts left to your spouse are not counted towards the $675,000 mark. But property left to anyone else will be subject to the tax.

As if this wasn’t enough, New Jersey also has an inheritance tax. The inheritance tax is a tax on money or property which is left to someone other than a close relative. New Jersey divides inheritors into three categories:

Class A Beneficiaries are exempt from the inheritance tax. They include parents, grandparents, spouse, child, stepchild and adopted children of the decedent.

Class B was deleted when the NJ Law changed.

Class C beneficiaries include the decedent’s siblings, or the spouse or civil union partner of the deceased person’s child. The tax rate for each of these beneficiaries is as follows:

First $25,000 No tax

Next $1,075,000: 11%

Next $300,000: 13%

Next $300,000: 14%

Over $1,700,000: 16%

Class D beneficiaries are everyone else. The tax rate for each of these beneficiaries is as follows

First $700,000 @ 15%

Over $700,000 @ 16%

Class E beneficiaries are exempt from the NJ Inheritance tax. These beneficiaries include State of New Jersey or any of its political subdivisions for public or charitable purposes, an educational institution, church, hospital, orphan asylum, public library, and some other nonprofit agencies.

The Estate Tax and Inheritance Tax are two reasons why it is essential to do estate planning if you live in NJ. Estate planning can give you many methods on how to lower your potential estate and inheritance Tax Bill.

One way would be to start gifting assets to your children. Federal law allows you to gift up to $14,000 to each child ($28,000 if married couple) without any federal gift tax consequences. Two parents could put this money into the NJ 529 plan for their children. Although NJ does not offer a state tax deduction for contributions to a 529 plan, the money does grow tax free until the time it can be withdrawn for college education purposes.

There are also various kinds of trusts one can use to lower the value of your estate. Consult a good estate planner to find out how you can plan for your future.   

All About Gun Trusts

Benjamin Franklin long ago said that “nothing can be said to be certain, except death and taxes”. But in America, another certainty is the large number of guns all over the country. Even though America leads the world in gun deaths, America’s love of firearms shows no signs of abating. In many parts of the country, even the mildest of gun-regulations is anathema to any politician hoping to get elected or stay in office.

Although there is no sign that robust gun-control legislation will become law, fear of gun confiscation still runs high throughout much of the country. Many people believe that a firearm is the only thing stopping the government from turning into a totalitarian dictatorship. It is because of this environment that many of those interested in protecting their Second Amendment rights have turned their sights to a specific Trust which adds an extra layer of protection to gun rights. It is called the NFA Gun Trust.

The NFA Gun Trust is specifically geared toward weapons listed under Title II of the National Firearms Act. By way of introduction: the National Firearms Act (NFA) was enacted in 1934, amended in 1968 and 1986. Title II of the NFA regulates certain types of guns and weapons which are considered more dangerous than other firearms. These include silencers, short-barreled shotguns, short-barreled rifles, explosive ordinances, and other types of weapons. The NFA has strict requirements with severe penalties for breaking them. Among the requirements is that each weapon must be registered with the ATF (Bureau of Alcohol, Tobacco, and Firearms). The owner is the only individual allowed to possess the weapon. Also, the owner must notify the Bureau of Alcohol, Tobacco and Firearms when crossing state lines with the weapon.

Purchasers of these weapons must also undergo a background check as well as get approval from a local law-enforcement officer (most of the time, the local sheriff). Many times, the local sheriff refuses to approve the purchase.

Transferring these weapons to another person is no easy task. If the owner wishes to sell his firearm, or if he dies and leaves it to his heirs, the recipient of the weapon must pay a $200 transfer tax, file an ATF transfer form, and jump through the same hoops as someone purchasing an NFA firearm for the first time.

The NFA Gun Trust may solve many of these problems and make the process of transferring a weapon less burdensome. Gun Trusts are revocable. There is at least one trustee (who is usually also the settlor or the grantor), at least one beneficiary, and the trust property (the firearms). A gun trust allows the customer to purchase guns in the name of a trust instead of in the purchaser’s name. This allows the purchaser to bypass many of the aforementioned regulations under Title II.

 Usually, for NFA firearms, only the registered owner is allowed to possess the weapon.  By appointing additional trustees, the gun owner can allow others to use the weapon.

For Estate Planning, the owner can appoint additional trustees or beneficiaries to the trust. That way, the gun owner can easily pass the firearms to his heirs without having to bother with the burdensome ATF regulations.

An additional benefit for estate planning purposes is that the gun trust will act as a guide to the executor of the estate who may otherwise not be familiar with the complex NFA Gun laws.

Gun trusts are becoming more and more popular. According to the Bureau of Alcohol, Tobacco, Firearms, & Explosives (ATF), 111,599 trusts were set up in 2014, up from 13,710 in 2009.

Obviously, Gun Trusts are controversial. A gun purchased by or transferred to a Gun Trust used to allow the purchaser or beneficiary to avoid a background check, fingerprinting, or obtaining the approval of a law enforcement officer while simultaneously enjoying the benefits of private-gun ownership. But new regulations signed by Attorney General Loretta Lynch on January 4^th added new hurdles to setting up a legal trust. Starting in July, all the members in a new trust must get a background check as well as submit fingerprints and photos to law enforcement. But the trust still allows the members to skip the approval of local law enforcement. The July deadline has caused a huge surge in the registration of gun trusts.  

It is important to note that Title II weapons are prohibited in New York and in other states. For residents of these states, the main benefit for creating a gun trust will be estate planning and insuring that one’s firearm is passed on to its intended beneficiary. There are many “do it yourself” sites popping up on the web. But nothing can substitute for a qualified estate planning lawyer who is well versed in this area of the law.