If you’re set to receive your full Social Security benefits next year, you may want to make sure you understand the estate and inheritances taxes of owning property, especially if it’s in more than one state.
Let’s say you own two co-ops in Manhattan and a home in New Jersey. All are all mortgage-free but you have a $69,000 home equity loan on the house. You may wonder if it’s better to continue to live in New Jersey with assets in New York or to move back to New York—or even somewhere else. This decision should be based at least in part on how your assets will be taxed, when you pass away. You also want to think about the beneficiaries of your property.
nj.com’s recent article asks, “Are estate and inheritances taxes worse in New York or New Jersey?” The article explains that estate and inheritance taxes are two different things, and it’s important to understand them.
An estate tax is levied on the estate of the decedent. An inheritance tax is paid by the beneficiary who gets the distribution from the estate. Few states have inheritances taxes. New Jersey abandoned their estate tax effective Jan. 1, 2018. However, New Jersey still has an inheritance tax. It is only applicable to non-Class A beneficiaries, which typically are heirs who are not lineal descendants. Children and grandchildren are Class A beneficiaries, so the inheritance tax would not apply to them.
There’s no inheritance tax in New York. However, the estate tax is imposed on taxable estates in excess of the state exemption. That’s $5.49 million in 2019 and will go up to $5.85 million in 2020. New York estate tax rates begin at 3.06% and increase to 16.0% for taxable estates in excess of $10.1 million.
An estate of a New York non-resident is required to file a New York State estate tax return, if the estate includes any real or tangible property in New York State and the amount of the non-resident’s federal gross estate, plus the amount of any “includable gifts,” is more than the state’s exclusion amount at the time of death. “Includable gifts” are gifts made while the decedent was a New York resident during the preceding three-year period ending on the date of death. These aren’t included in the decedent’s federal gross estate.
In the example above, it looks like New Jersey would be the better domicile in which to claim residency, because no estate or inheritance tax would be due. Depending on the value of the two co-ops in New York, he may owe New York estate tax, if the value exceeds the New York State estate exclusion amount. That’s true whether he’s a New York or New Jersey resident.
Under current New Jersey law, moving to another non-estate tax state, like Florida, won’t help him with any additional estate tax benefit. As always, talk with an estate planning attorney regarding the above specifics and to make certain that your estate plan is complete and follows your goals.
Reference: nj.com (December 4, 2019) “Are estate and inheritances taxes worse in New York or New Jersey?”