Estate Planning for the Modern Family
Apr 13, 2021 | Written by: Share|
Estate planning, like everything else affecting our lives, has evolved over time. The concept of the unlimited marital deduction (whereby a surviving spouse pays no death taxes on assets inherited from the deceased spouse) has been a basic building block of the transfer tax system since 1981. The federal estate tax unified credit (now called the basic exclusion amount or BEA) has likewise been in the tax code since 1981 but has increased significantly over time.
The initial BEA sheltered $125,000 of assets in the decedent’s estate from being subject to estate tax. The BEA increased over the years until it reached $675,000 in the year 2000. In the period from 2001 to 2020, the BEA increased to more than $11 million per person. The New Jersey estate tax exemption increased to $2 million in 2017, however, the New Jersey estate tax was eliminated as of January 1, 2018. In addition, the federal estate tax code provides for spousal portability, meaning that the “unused” portion of the BEA of the first spouse to die can be claimed by the surviving spouse, effectively doubling the BEA for a married couple to approximately $23 million. Thus, the estates of New Jersey decedents presently enjoy a substantial exemption from payment of death taxes.
But beware, federal estate tax reform is in the works. It is anticipated that the $11 million BEA will be substantially reduced, perhaps to an amount as low as $2 million. Likewise, there is support for reinstating the New Jersey estate tax and retaining the $2 million exemption that was in place until January 1, 2018. Finally, there is the daunting prospect that the carryover tax basis rules will henceforth be applied to inherited assets (eliminating the “step-up” in tax basis that now applies). This will result in substantial capital gains taxes payable by family members when the inherited assets are sold.
If these anticipated changes to the tax code are carried into law, the results will be financially devastating for the surviving family members of many New Jersey decedents. However, there are numerous estate and gift tax planning techniques that can be implemented now to shelter your assets from potential death taxes and capital gains taxes, as well as from the claims of creditors. Please call us for a consultation to discuss which estate planning techniques will best suit your family.