The Apportionment of Estate Taxes Part 1: Who Bears the Burden?

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Estate Administration & Probate Laws Attorney

One of the biggest challenges I have as an estate planning attorney is determining who must bear the burden of state and federal estate death and inheritance taxes.  As you may have heard, the estate tax is being repealed by New Jersey.  This repeal, however, has not taken effect, and according to the terms of the law, will be phased out step by step.  Come January 1, 2017, the estate tax exemption amount will be raised from its current level of $675,000 to $2 million dollars.  The following year, January 1, 2018, the estate tax will be repealed.  Even with the estate tax being repealed, for those estates worth more than $5.45 million dollars in value, the federal estate tax will kick in, and there are also potential inheritance taxes to some beneficiaries not affected by the new law.

So the question becomes who pays these death taxes?  Many believe that the “estate” will pay all the taxes. Not always the case. Some wills contain a clause stating that the residuary of the estate must pay any and all estate or inheritance taxes.  The residuary is defined as any property owned by the decedent that has not been specifically bequeathed to another party.  This allows the estate to dispose of its tax burdens while allowing beneficiaries to receive their inheritance without necessarily having to pay estate and/or inheritance tax.

But of course, some wills do not contain such language.  And in the absence of this language, the question becomes who is responsible for the estate death tax.  In the absence of language in the will or trust, the estate tax is apportioned amongst the beneficiaries of the property, as N.J.S.A. §3B:24-2.  This means that when the estate tax is calculated, the tax bill is distributed proportionately amongst the beneficiaries, who received the inheritance.  How much tax must a beneficiary pay?  Our next blog entry will discuss how everything gets apportioned.

To discuss your NJ Estate Planning matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.