As of Jan. 1, New Jersey no longer has a state-imposed estate tax. However, we still have an inheritance tax on assets that go to a beneficiary after a person's death.
Surviving spouses do not have to pay an inheritance tax on assets left to them by their husband or wife. However, estates can still be subject to federal estate taxes.
Even without an estate plan, you and your spouse can ensure that whichever one of you lives longer inherits all the money in joint accounts when one of you dies. You can establish the account with rights of survivorship. That means the surviving spouse automatically gets all the funds in the account.
If you don't want your share of the funds to go to your surviving spouse, but to another beneficiary, you would establish the account without rights of survivorship. However, unless you clearly designate where you want your share of the money in the account to go upon your death, the law will treat the account as it would one with rights of survivorship for the spouse. The entire account will belong to that person.
One New Jersey estate planning attorney notes, "If the account passes to the surviving account holder by rights of survivorship…the account will not be in the decedent's probate estate." She notes, however, that "one-half of the value of the account is still part of the decedent's taxable estate." Surviving spouses can avoid adding those assets to the estate if they can prove that all the money in the account belonged to them and not their deceased husband or wife. This can be a challenge, of course, with joint accounts.
One of the many advantages of having an estate plan is that you can help minimize the taxes your loved ones will have to pay after you're gone. Depending on what state you're in, this could include some combination of federal and state inheritance and estate taxes. Until this year, New Jersey was one of just a few states that levied both inheritance and estate taxes.
With the year less than half over, some analysts are already noting that the significant drop in revenue coming into the state coffers. It remains to be seen whether there will be an attempt by lawmakers to reinstate the estate tax. Experienced New Jersey estate planning attorneys stay informed on these laws and advise their clients accordingly.
Source: NJ.com, "Do spouses owe tax on inherited bank accounts?," Karin Price Mueller, May 23, 2018