Bridgewater Estate Tax Planning Lawyer
Estate tax planning is a complex matter that is frequently affected by new laws and tax codes. For this reason, clients often come to us with questions or concerns about how their estate planning will affect the estate’s beneficiaries. Consulting a Bridgewater estate tax planning lawyer about these kinds of situations is an excellent way to plan for the future and help your heirs limit taxes.
If you are currently working on your estate plan, the legal team at Van Dyck Law Group can assist you with all aspects of this process, including minimizing taxes for the estate’s beneficiaries. Please contact us today to schedule a consultation and learn more about your options.
How a Bridgewater Estate Tax Planning Attorney Helps with Tax Exemptions
There are several different kinds of tax exemptions with varying rules. Your estate tax planning attorney can help you by explaining the differences and how they might apply to your estate.
They may also recommend other estate planning strategies to help in lowering the taxes being paid by the estate’s beneficiaries.
At Van Dyck Law Group, we will review your situation, ask about your goals, and identify the best ways to reduce or eliminate taxes for your heirs. In many situations, we may be able to suggest options the client didn’t know were available.
In contrast, people who choose to plan their estate without expert legal advice may not know all the possibilities or how they will affect taxes. Even those who research estate planning online might not know all the topics to explore.
For this reason, we recommend seeking expert legal advice rather than using a preprinted will form.
Common Tax Exemptions
Many of our clients have questions about lifetime gifts and how they work. Others may want to know about federal estate tax exemptions or how New Jersey state law deals with tax exemptions.
These are just a few frequent ways that estate planning lawyers help to reduce the tax burden for an estate’s beneficiaries. Let’s review some of the common tax exemptions that may be helpful for estate planning.
Federal Estate Tax Exemptions
The federal estate tax exemption represents the maximum amount an individual can pass on to heirs at death without triggering federal estate taxes. It serves as a cutoff point; if an estate’s total value is below this limit, no federal estate tax is owed.
This limit is often raised due to inflation or other tax legislation.
The current exemption is set at $ 13.61 million, so an estate worth $13 million would not be taxed federally. However, if the estate exceeds this limit, only the portion above the exemption is subject to federal estate tax, which is currently taxed at a rate of 40%.
Again, these numbers are subject to change between the time an estate is planned and when the inheritance is paid to heirs.
Lifetime Gift Tax Exclusion
You can make a tax-free gift of a certain amount of money to relatives or anyone you like each year. In this case, lifetime does not mean that there is a lifetime limit to how much you can give tax-free, but instead refers to giving a gift during your lifetime (as opposed to an inheritance, which can only be claimed after you pass away).
Currently, the gift tax exclusion for 2025 is $19,000, but this amount typically changes annually. That means you can make a gift of up to $19,000 to anyone you want, and they do not have to pay any taxes on it.
However, any amount over $19,000 in 2025 will be taxed, with an upper rate of 40 percent.
For example, let’s say that you want to give your daughter a gift of $30,000. If you give her the full amount this year, she will have to pay taxes on $11,000. However, if you give her $19,000 this year and $11,000 next year, she will not have to pay taxes on these gifts.
Generation-Skipping Transfer Tax Exemption
The generation-skipping transfer tax, also known as GSTT, applies to transfers of property that skip a generation, typically moving assets from one generation to another that is two or more levels below the giver. For example, it commonly involves a grandparent passing assets to a grandchild or grandchildren.
However, it can also be used if someone transfers wealth to an unrelated person who is over 37.5 years younger.
The GSTT can be combined with the federal estate tax exemption and the lifetime gift tax exemption, with the maximum exemption depending on current limits.
Understanding Portability in Estate Tax Planning
The American Taxpayer Relief Act of 2012 (ATRA) introduced a significant shift in estate planning for married couples by establishing the concept of “portability” as a permanent feature of the tax code. This provision allows a surviving spouse to make use of any unused federal estate tax exemption from their deceased spouse, potentially eliminating the need for traditional strategies such as A-B Trusts.
Downsides of Portability in Estate Tax Planning
As with many aspects of tax law, reading the fine print matters. To take advantage of portability, the surviving spouse must file Form 706 within nine months of the decedent’s death and meet specific criteria; otherwise, the benefit may be lost.
It’s also important to note that portability does not apply to the Generation-Skipping Transfer Tax (GSTT) exemption. As a result, couples using portability to maximize their estate tax exemptions may forfeit the ability to apply both spouses’ GSTT exemptions.
Additionally, relying solely on portability in situations involving blended families can lead to unintended outcomes, such as accidental disinheritance or other unforeseen complications. For this reason, we recommend consulting with an experienced estate tax planning attorney to determine if portability is the right option for you.
New Jersey State Inheritance Tax
New Jersey’s state inheritance tax laws have changed in recent years, and many beneficiaries are now exempt from the state tax. Exemptions are made so the decedent’s spouse or domestic partner, children, stepchildren, grandchildren, parents, and grandparents pay no state inheritance tax.
The decedent’s siblings and their children’s spouses or civil partners pay no taxes on the first $25,000 of an inheritance.
Most heirs who don’t fall into one of the above groups are not eligible for exemption and are currently taxed at a rate of 15 percent for the first $700,000, and 16 percent for any additional inheritance.
Why Is It Important to Consult a Bridgewater Estate Tax Planning Attorney About an A-B Trust?
An A-B trust is a type of joint trust typically established by married couples to help reduce estate tax liability. Each spouse contributes assets and designates a final beneficiary, who must be someone other than the surviving spouse.
Upon the death of one spouse, the trust divides into two distinct parts: Trust A (for the surviving spouse) and Trust B (holding the deceased spouse’s share). Due to this split, estate taxes are reduced and deferred until the surviving spouse passes away.
The surviving spouse typically has limited authority over the deceased spouse’s trust. However, the trust can be structured to permit the survivor to use the assets and receive income generated by them.
While once a common estate planning tool, A-B trusts are now used less frequently due to the high federal estate tax exemption that shields many estates from taxation. However, if you have a very large estate, it may still be beneficial.
An A-B trust is only one of several estate planning tax strategies, and it’s so hard to understand its complexity without the guidance of a legal professional. That’s why it’s so important to consult with an estate tax planning attorney, as they will help you identify and explain the best options for your specific situation.
Estate Tax Planning FAQ
Is Estate Planning Tax-Deductible?
Since 2018, personal estate planning costs like will drafting or trust creation are no longer tax-deductible. They were previously deductible for taxpayers who itemized deductions, but 2017 legislation removed many of these potential deductions.
However, in some circumstances, these costs might still be deductible for business purposes. For instance, if you create a trust to produce income or manage property, you may be able to deduct the legal fees associated with this effort.
Or, if you need to make a will as part of succession planning for your business, that might count as a tax deduction.
How Many Tax-Free Gifts Can You Make in a Year?
Sometimes, clients ask if there is a limit to the amount of money they can give or the number of people they can make tax-free gifts to annually. You can make tax-free gifts up to the exclusion limit to as many different people as you want, as long as you don’t go over the exclusion amount for any one person.
What Are the Rules About Lifetime Gifts in New Jersey?
In New Jersey, lifetime gifts can sometimes be subject to taxation if they are made within three years of the decedent’s passing and are a “material part” of the estate. However, some lifetime gifts in this period may avoid the state inheritance tax if there is evidence they were not given “in contemplation of death.”
Additionally, a gift that does not represent a substantial part of your estate will probably not be taxed.
In other words, the state doesn’t want a terminally ill person to give away a large portion of their estate shortly before their death, thus avoiding all or most inheritance taxes. If you have concerns about how your gifts might be viewed after your passing, an estate tax planning lawyer can advise you on the best course of action.
Contact Bridgewater Estate Tax Planning Law Firm to Learn More About Estate Tax Planning Strategies
Estate tax planning can be complicated, but an experienced estate tax planning lawyer can help you understand how current tax laws affect you and your estate. We’ll ask questions to learn about your estate planning goals, then explain the options that will best fit your situation.
Once you’ve decided how to proceed, we’ll assist you with the necessary steps. For more information, please contact the Van Dyck Law Group for a consultation at (908) 201-0629.
