Death & Taxes: New Jersey Hastens the Long, Slow Death of the State Estate Tax

Halloween has come and gone, and while some chose to celebrate with trick-or-treating or binge-watching the best Halloween movie of all time, others celebrate the tradition of Día de los Muertos (“Day of the Dead”). Día de los Muertos is technically a two-day celebration during which families remember and honor their loved ones who’ve passed away. This year, lovers of the New Jersey estate tax have another spirit to remember: New Jersey is eliminating its estate tax.

New Jersey Gov. Chris Christie signed A.B. 12 on Oct. 14, signaling the beginning of the end of the New Jersey estate tax. Among other changes, the new law increases the exemption from the current $675,000 to $2 million for decedents who die on or after Jan. 1, 2017. For decedents dying on or after Jan. 1, 2018, the New Jersey estate tax will no longer apply. Before this legislation, New Jersey imposed both an estate tax and an inheritance tax—the only other state to do so is Maryland, according to Leslie Pappas and Megan Pannone in an article for the Daily State Tax Report (subscription required). 

Prior to A.B. 12, New Jersey had the lowest exemption amount at $675,000, according to the Tax Foundation. After Jan. 1, 2017, when the new exemption amount begins to apply, the lowest exemption amount ($1,000,000) will be in Massachusetts, Oregon and D.C. Three states—Delaware, Hawaii and Maine—allow the highest exemption amount, $5,450,000, which is equal to the federal exemption.

State “death taxes,” which include both estate tax and inheritance tax, have been waning over the last decade. After the phaseout of the federal credit for state estate taxes paid in 2005, many states no longer levied the tax. In the last three years, the estate tax has been repealed in North Carolina and Ohio and Tennessee’s inheritance tax[1] was also repealed. Efforts to repeal the estate tax in Oregon and the inheritance tax in Nebraska were unsuccessful, according to The Balance. Once New Jersey’s estate tax is repealed, only 14 states will still impose an estate tax and only six states will still impose an inheritance tax. Of the states which still impose an estate tax, several have increased their exemption amounts to either match or be closer to the federal amount.

The federal estate tax has been in the news recently as part of the 2016 presidential election. Sec. Hillary Clinton’s tax plan contemplates a lower exemption amount and small increases in the tax rate for estates under $10 million; for larger estates, Sec. Clinton plans to increase the estate tax rate to between 50 percent for estates of over $10 million and 65 percent for estates of over $500 million. Donald Trump’s tax plan calls for the estate tax’s repeal with revenues replaced by a tax on capital gains held until death, according to Allyson Versprille in an article for the Daily Tax Report.

The fate of the federal estate tax and its state-level counterparts remains to be seen—in a few years, we could be remembering them all on Día de los Muertos.

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[1] Tennessee’s inheritance tax functioned as an estate tax because it was imposed upon the value of the taxable estate rather than upon individuals receiving the property within the estate.