Wealth Preservation and Tax Avoidance

Exemption

While the exemption (or “coupon”) is incredibly high right now, the amount is expected to drop to $5 million at the end of 2025. This timing correlates with the sunset of Tax Cuts and Jobs Act. Lawyers, accountants, and politicians do not know the exact amount of the exemption to take effect in 2025; however, nearly all will agree that taxes are going to increase in order pay for the large deficits that ballooned during the pandemic. The last thing you want to do is have your after-tax dollars subject to yet another round of taxes. We are committed to preventing this worst-case scenario for you.  

Are you a US Citizen? 

If you are not a U.S. Citizen, your “coupon” is drastically lower than that of a U.S. Citizen. Currently, a non-U.S. Citizen can only shelter $60,000 from estate taxes. This can radically reduce the net amount to your loved ones, leaving them in financial harm. A skilled estate planning attorney can increase the amount left to your loved ones by creating a Qualified Domestic Trust (“QDOT”).

Federal Estate Taxes

In order to combat Federal estate taxes, some had the idea to just gift away money and property while alive. Unfortunately, the IRS caught on to this and put a backstop on this approach via the gift tax. The IRS only allows you to gift up to $17,000 per person per year (amount adjusted annually). Anything in excess of this amount counts towards your unified credit (or “coupon”) that comes due upon your death. Lifetime gifts can reduce the total value of your taxable estate, but only to a certain degree. Other planning tools, like an Irrevocable Life Insurance Trust (ILIT) or a Donor-Advised Fund (“DAF”) can work in tandem to help avoid Federal estate taxes.

 On top of Federal estate tax, states have their own estate tax structure. New Jersey eliminated its estate tax in 2018.  Prior thereto, New Jersey used to heavily tax estates in excess of $2,000,000. Florida also lacks an estate tax.

 While there is no longer a New Jersey estate tax, there is still a New Jersey inheritance tax. The inheritance tax is based not on how much money is in the estate, but rather who inherits the money. The amount of taxes paid depends on who receives the money. New Jersey classifies beneficiaries as follows:

Class A: spouse, domestic partner, parent, grandparent, child, stepchild, adopted child, and grandchild

• No tax

 Class B: eliminated July 1, 1963

 Class C: sibling, daughter-in-law and son-in-law

• First $25,000 tax-free
• 11% tax on $25,000 – $1,100,000
• 13% tax on $1,100,00 – $1,400,000
• 14% tax on $1,400,000 – $1,700,000
• 16% tax on $1,700,000+

 Class D: everyone else (examples: friend, neighbor, cousin, boyfriend, or girlfriend)

• First $500 tax-free
• 15% tax on $500 – $700,000
• 16% tax on $700,000+

 Class E: charities, religious institutions, educational institutions, medical institutions, State of NJ or any of its political subdivisions

• No tax

Florida does not have an inheritance tax. Relocation is not the only tool in your pocket to avoid estate and inheritance taxes. We are committed to coming up with mindful solutions to wholistically address your tax concerns and avoid double taxation.