A vital part of the estate planning process is recognizing (and optimizing) those opportunities to preserve assets for one’s beneficiaries in New Jersey. Estate administration can be a costly process, so making plans to avoid probate or settle debts prior to one’s death can benefit their loved ones. Estate taxes, however, loom large as an expense one cannot avoid.
This may not be the case, however. According to Forbes Magazine, New Jersey repealed its local estate tax back in 2018, meaning that the only potential tax burden one’s estate may face comes from the federal level. Yet they may be able to avoid that expense, as well.
Is there an estate tax exemption?
The easiest way would be to take full advantage of the federal estate tax exemption. Federal lawmakers adjust the exemption threshold annually. Per the website NerdWallet.com, the exemption amount for 2021 is $11.7 million. Thus, provided the total taxable value of one’s estate comes in under that amount, it will not be subject to tax.
One important point to consider when contemplating the estate tax exemption is that it applies only to a person’s individual estate. Say that they choose to leave a significant amount of assets to their spouse. Doing so could push the spouse’s estate above the exemption amount (inadvertently making it subject to tax). Estate tax portability, however, allows one to avoid this possibility.
What is portability?
Portability refers to the sharing of tax benefits between eligible parties. When it comes to estate taxes, spouses may share their exemption amounts. This means that one may claim their deceased spouse’s unused estate tax exemption and combine it with their own (effectively extending their own exemption).