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How taxes can influence estate planning strategies

On Behalf of | Jan 29, 2025 | Estate Taxes

Estate planning is a bit like juggling. People have to actively track multiple different important considerations simultaneously to ensure that they adequately address all of them. Frequently, people focus primarily on legacy wishes and high-value assets.

They worry about providing resources for their dependents or making arrangements for their own support during times of medical need. Another important consideration that people sometimes fail to consider during estate planning is how tax obligations might affect their legacy and their beneficiaries.

Taxes can be one of the most important factors to integrate into a New Jersey estate plan. What taxes may influence how a testator structures their estate?

Estate and inheritance taxes

Estate taxes are due from the estate on the basis of its overall value. Inheritance taxes are an obligation imposed on those who actually receive resources from an estate.

New Jersey does not currently assess an estate tax, but testators in the Garden State may need to cover federal estate taxes. In 2025, the exemption limit for federal estate taxes is $13.99 million. Any estates worth more than that may have to pay federal estate taxes.

New Jersey does collect an inheritance tax. Beneficiaries sometimes have to pay taxes on what they inherit. Immediate family members including spouses, children, grandchildren, parents and domestic/civil union partners can typically avoid inheritance taxes.

More distant family members or those without familial relationships to decedents typically have to pay inheritance taxes. Testators can plan in advance to minimize those taxes.

Income taxes

The personal representative administering an estate often takes responsibility for filing the final income tax return of the decedent. People may need to earmark resources to cover their income taxes, especially if they pay estimated taxes as small business owners or self-employed professionals.

In some cases, the estate itself may have to cover income taxes. If the estate plan requires the liquidation of estate resources and sales generate $600 or more in revenue, the personal representative may have to file an income tax return on behalf of the estate.

There are other taxes, including capital gains taxes on liquidated inherited property, that people may have to factor into their estate plans. Discussing estate resources and the circumstances of beneficiaries with a skilled legal team can help people establish estate plans that effectively address tax responsibilities. New Jersey residents who plan for taxes ahead of time can optimize what their beneficiaries ultimately inherit.