BOROSON ON MONEY
How much in the way of assets can a person leave in a will that will escape federal estate taxes?
Jay J. Freireich, a lawyer with Brach Eichler in Roseland, asked that question of members of the Investors Club in Ridgewood the other day, and hardly anyone knew the answer. (Including me.) Not surprising. Estate taxes are a wickedly complicated subject, and the facts keep changing. But Freireich happens to be a lawyer who can not only make the subject clear, but interesting.
OK, the answer: This year, each spouse can leave $5 million without incurring federal estate taxes. So, a married couple can leave $10 million. The same will be true for the year 2012, but beginning in that year, the exemption will be indexed for inflation.
In 2013, the exemption amount is scheduled to become $1 million -- $2 million for two spouses. Estate tax rates rise – to 55 percent for estates above $3 million and 60 percent for estates above $10 million.
Currently the highest Federal estate tax rate is 35 percent.
In New Jersey, someone can leave $675,000 without a state estate tax. A couple can thus leave $1,350,000. The tax itself follows a graduated schedule that ranges up to 16 percent for an adjusted taxable estate over $10,040,000.
There’s also an inheritance tax, the amount of which depends on how the beneficiary was related to the person who died.
There are various classes of beneficiaries:
Beneficiaries who were closely related are exempt from an inheritance tax. This includes spouses, lineal descendants and ascendants, and stepchildren.
Beneficiaries who are more distantly related could trigger an inheritance tax of up to 16 percent of the value of the assets on the date of death.
With siblings, or the widow or surviving civil-union partner of a son or daughter, the first $25,000 is exempt; the next $1,075,000 is taxed at 11 percent; the next $300,000 is taxed at 13 percent; the next $300,000 is taxed at 14 percent; and anything over that is taxed at 16 percent.
Qualified charities are exempt.
For everyone else, assets under $500 are exempt from taxes; for $500 or more, there’s no exemption. The first $700,000 is taxed at 15 percent, and everything over $700,000 is taxed at 16 percent.
Some other points Freireich made:
- What about putting assets in trust, to avoid probate? (Probate sees that assets are distributed properly.)
Freireich argued that while probate procedures in some states are “horrible,” probate in New Jersey is relatively simple. So “There’s no need for a trust in New Jersey if you’re just trying to avoid probate.”
- Certain assets are not controlled by a will – life insurance proceeds, for instance. IRAs, 401(k) plans, and pensions also bypass a will. Unless…all the named beneficiaries have died, in which case the assets go back into the estate, and the will decides who gets what.
- The executor’s job is to wind up the estate, collect assets, pay the debts and expenses, file a final income-tax return, and so forth. There can be more than one executor. He or she should also make sure the assets are insured: If the dead person’s house burns down, without insurance coverage, the executor may be held responsible.
Executors are paid, the amount depending on the size of the estate.
- The spouses should see that each has assets in his or her name – otherwise one New Jersey $675,000 exemption may go to waste.
Freireich also talked about guardians, trustees, power of attorney, health care directives, generation skipping transfer taxes, gift taxes, the unified credit, ownership of real property, and so forth. All of which made me glad I didn’t become a lawyer.
Since 1986 Freireich has been in the private practice of law representing clients in their tax, business, and estate planning and estate litigation needs. His clients are mostly individuals and small- to mid-sized companies. He practices exclusively in the areas of taxation, estate planning, estate administration, estate litigation, asset protection, reorganization, corporations, trusts, civil and criminal tax litigation and commercial litigation.
He received his BA degree from York University, Toronto (1982), Juris Doctor degree from Nova University, Fort Lauderdale (1985), and Masters of Laws in Taxation degree from the University of Miami (1986). He was born in Atlantic City, N.J. in Sept. 23, 1959.