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New Jersey Passes Law Repealing Estate Tax By 2018

On October 14, 2016 Governor Christie signed into law the much discussed gas tax hike bill, ultimately repealing the New Jersey estate tax in its entirety.  Beginning on January 1, 2017, a decedent will not be subject to New Jersey estate tax unless his or her taxable estates are greater than $2,000,000 (a significant increase from the current $675,000 New Jersey estate tax exemption).  For individuals dying on or after January 1, 2018, the New Jersey estate tax is repealed entirely.  A decedent domiciled in New Jersey and dying in 2016, however, will remain subject to New Jersey estate tax if the value of his or her taxable estate exceeds $675,000.

Despite the imminent repeal of the New Jersey estate tax, New Jersey will continue to impose an inheritance tax on transfers after death.  Unlike the estate tax, which is based on the size an estate, this tax is based on the relationship between the decedent and the beneficiary receiving the assets.  There is no inheritance tax imposed on Class A beneficiaries (spouse or civil union or domestic partner, lineal ancestors, descendants, and stepchildren) and qualifying charities.  The rate of inheritance tax imposed on transfers and exemptions available to other individuals depends on the Class that they fall under.  The New Jersey inheritance tax rates range from 11% to 16% (the applicable rate depends on the transfer amount and the class of beneficiary).  The inheritance tax excludes the transfer of certain assets, including retirement benefits and life insurance paid directly to a beneficiary or trust.  However, the inheritance tax is imposed on transfers for less than fair market value (gifts) that occur within three years of death to beneficiaries who are not Class A or qualified charities.

In light of the elimination of the New Jersey estate tax, you should consider reviewing your estate plan to ensure that it achieves your objectives.  The repeal of New Jersey’s estate tax does not negate the need for estate planning.  There are many issues to consider during the planning process that have nothing to do with New Jersey estate tax planning.  The federal estate tax exemption remains at $5.45 million, indexed for annual inflation, and inheritance planning might still be relevant, depending on your individual circumstances.  A well thought out estate plan will let you decide for yourself what is best for you and for your family, both during your life (in the event of incapacity) and after your death.

If you have any questions about how the phase-out and elimination of the New Jersey estate tax impacts your specific planning, please contact us.  We are happy to assist you in achieving your estate planning goals.

If you would like to discuss these issues further, please do not hesitate to contact Joseph L. Goldman, Esq., or Naomi B. Collier, Esq., at 201-488-8200.

Joe Goldman Interviewed by NJ1015 Radio

Partner Joe Goldman is interviewed by NJ1015 radio. See link for full article: http://nj1015.com/survey-majority-of-american-parents-have-a-will/

IRS Releases Draft of Streamlined Application for Tax-Exempt Status

By Joseph L. Goldman, Esq.
jgoldman@pashmanstein.com

IRS has released Draft Form 1023-EZ (Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code) and its draft instructions.  The 2-page Form 1023-EZ is a shorter version of the regular Form 1023 that may be used if an organization meets specific criteria (determined by completing the Form 1023-EZ Eligibility Worksheet).

The new form has been created as a method for smaller organizations to apply for exemption under Code Sec. 501(c)(3).  Form 1023-EZ (like Form 1023) provides IRS with information to determine the applicant’s exempt status and private foundation status.  Upon acceptance of the form, IRS will issue a letter that provides written assurance about the organization’s tax-exempt status and its qualification to receive tax-deductible charitable contributions.

Organizations that would normally file Form 1023 will be able to file Form 1023-EZ if they meet the following requirements:  no more than $200,000 of projected annual gross receipts in any of the next three years; annual gross receipts of not more than $200,000 in any of the past two years; total assets not in excess of $500,000.

An organization is a tax-exempt organization under Code Sec. 501(c)(3) if it is organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals.  With limited exceptions, an organization must notify IRS that it is applying for Code Sec. 501(c)(3) status.  To obtain recognition of exemption from federal income tax under Code Sec. 501(c)(3), an organization must generally file the 26-page Form 1023 (Application of Exemption Under Section 501(c)(3) of the Internal Revenue Code).

The Form 1023-EZ Instructions remind taxpayers about key requirements for an organization to be exempt from federal income tax under Code Sec. 501(c)(3).  It must be organized and operated exclusively for one or more exempt purposes.  Further, an organization doesn’t qualify for Code Sec. 501(c)(3) status if a substantial part of its activities is attempting to influence legislation.  In addition, all Code Sect. 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating or intervening in any political campaign on behalf of (or in opposition to) any candidate for elective public office; although non-partisan voter education activities (including public forums and voter education guides) are allowed.

IRA Rollovers to be Limited

A law limits the number of IRA rollovers that can be made in any 1-year period to one.  Recently, the Tax Court held that the limit applies not to each separate IRA an individual may own, but to all of his or her IRAs.  It reached this result even though the  IRS had indicated in proposed regulations and tax publications that the limit applies to each IRA.  Thus, an individual with three IRAs could make three rollovers in a 1-year period under the IRS guidance but only one under the Tax Court decision.

After considering the matter, the IRS has announced that it will adopt the more restrictive view of the Tax Court.  However, the new rule won’t apply to any rollover that involves a distribution occurring before 2015.

The IRS emphasized that an IRA owner will continue to be able to transfer funds from one IRA trustee directly to another as frequently desired.  Such transfers are not rollovers and thus are not subject to the limit.