New Jersey Estate Planning & Elder Law Blog : New Jersey Estate Planning Lawyer & Attorney : Deirdre Wheatley-Liss : Fein Such Kahn & Shepard Law Firm : Elder Law, Tax Planning

 Derek Jensen of Jensen Law Offices reminds us in his blog that the Estate Tax is not the only federal tax provision expiring on December 31 due to Congressional inaction this year.

The estate tax isn't the only tax provision expiring on Dec. 31. Due to congressional inaction 50 tax provisions will expire. Including the annual AMT patch, the deduction for state and local sales taxes, the $4,000 deduction for college tuition, a provision that allows taxpayers age 70-and-a-half or older to transfer up to $100,000 directly from an IRA to charity, the business R&D credit, and a biodiesel tax credit. Many of these provisions require action every year and they are likely to be extended again, but retroactively this year.

As a tax professional I find in mindboggling that Congress, whose constitutional mandate (Article 1, Section 7)is to make and pass tax laws "All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills" can't bring themselves to do their jobs.  

I know there is a lot going on in Washington, but these tax provisions all have a 1 year life, and Congress knows that they therefore must act on them every year.  It is not as if the tax code is a small deal - it is only the means by which the federal government makes the money they spend.  It is lazy to say "we'll do it next year and make it retroactive" because what if you don't?  How can a person or business plan how to allocate their dollars when the tax laws that share in those dollars are in limbo?  How can a business plan to invest in new research when they can't budget what it will cost them because they don't know if the Research and Development credits will exist? Why should 23 million more American's have to worry if the AMT may catch them this year (or just be surprised by it) because our elected representatives can't get around to passing the annual patch that resets the income levels?

All of us are working harder, doing more to meet our responsibilities - Congress should be held responsible to to make the time to meet their responsibilities and this nonchalance about doing their jobs should not be ignored (like they are doing to the tax code). 
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

After a flurry of reports that Congress was going to address the estate tax this week, Derek Jenson posts this week that it is being postponed until at least after Thanksgiving.  Derek comments that this makes the one year extension of the current federal estate tax law (a $3.5 million exemption per person with a 45% rate) virtually a lock - because what else do they have time to do at this point?

Interestingly, Derek comments on how this "band aid" is only going to create more of an issue for congress.  

The 2010 extension is easy. It is a tax increase. What is difficult is raising the exemption and lower the rates for 2011. That will be a tax cut. [snip] It is not difficult to image that a year from now we will still not have a permanent estate tax bill and will be facing another one year extension or a return to the $1.0 million exemption."

Recall that under the current law, while there is no estate tax in 2010, the estate tax returns in 2011 with a $1 million exemption and 55% top rate - so the trade off for one year of no estate tax is potentially agreeing to keep the current level of $3.5 million exemption and 45% permanently (not that anything is ever truly permanent with tax and congress).  

According to the Congressional Quarterly, the cost of keeping the current rates over the next 10 years versus allow the estate tax to go away for 1 year and then come back in at lower levels (ie, if Congress does nothing) is a staggering $233.6 billion over 10 years.  We we are looking at extreme health care costs on top of an already bloated budget - perhaps a do nothing approach may net Congress more dollars in the end.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

It seems that my in box is full of information on better places to live than New Jersey from a cost perspective (personally, I love the shore and NYC and Philly and skiing all being within 2 hours drive). I got a very thoughtful piece from my friends at RegentAtlantic Capital entitled "When You've Paid New Jersey Enough".  In the article, Bill T. Knox, "reviews the key factors that should determine whether someone who has lived in NJ and then establishes a home outside the state will be successful in escaping the state’s income and death taxes."  

Bill looks at New Jersey domicile and residency from the income tax and estate and inheritance tax perspective.  Domicile is a very tricky question - it is where you intend to be without intending to move.  So if you intend to be an Florida resident, but keep your New Jersey home and all your bills coming here, did you really leave New Jersey domicile?  

And why does domicile matter?  Well, New Jersey income tax applies to all income earned by New Jersey "residents", and the New Jersey Estate tax is levied against a New Jersey resident who dies.  Clearly, if there is a question, New Jersey would like to claim that you live here and you should pay here.  So, if your domicile and residency are supposed to be elsewhere, you need to make sure that you have dotted all "i's" and crossed all "t's" to make that happen.

Quick story - A client of mine died January 1, 2009.  She had changed her residency and domicile to North Carolina in the year before her death.  Her estate is approximately $3.5 million.  Had she dies a New Jersey resident she would have owed New Jersey approximately $230,000.  As a North Carolina resident, her estate tax bill is $0.00.  How is that for some effective Estate Planning???

In "When You've Paid New Jersey Enough" Bill provides a quick checklist of key domicile and residence issues.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 It is no secret that New Jersey is the most expensive state to die in. New Jersey has the lowest estate tax exemption threshold of the country at a mere $675,000. In contrast, Florida has no state-level estate tax, and the creation of an estate tax is specifically banned by its Constitution. in addition, Florida's state revenues are generated primarily from property tax and sales tax. Due to all of these things, Florida is a less expensive State to live and die in New Jersey.  For years we've been recommending to clients who have homes in both New Jersey and Florida to consider changing their residency of Florida.

Bloomberg.com in Florida’s First Population Decline Since 1946 Squeezes Budget reports that Florida just experienced it's first population decline since 1946 -- that's over 50 years of growth -- and the last decline was apparently as a result of military personnel leaving Florida after World War II.  And the predictions are that this trend will continue:

 "Rising property taxes, increased homeowner insurance costs since the 2004-2005 hurricane season and competition for retirees from other states such as Georgia will damp population growth in coming years".

Additionally, "Sales-tax collections, which brought in 27 percent of revenue in 2008-2009 in a state without a personal-income tax, fell 10 percent last year."

From an estate planning perspective then, this raises the question of whether or not Florida will continue to be the "go to" state when recommending residency change from New Jersey as a way to reduce estate taxes.  Florida may need to change its revenue generation model, by raising sales tax, raising property tax, adding income tax, bringing back the intangibles tax, or some other manner that makes it more expensive to be a Florida resident.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link