The Apportionment of Estate Taxes Part 2: How Much Of A Tax Burden?

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

In our last blog, I discussed paying the estate and inheritance tax an estate must bear.  Remember that in the absence of language that states who will pay the taxes, the estate tax is borne by all those beneficiaries entitled to a piece of the property.  This is not always the case.  Often times, wills contain a clause stating that the residuary of the estate shall pay for any estate or inheritance taxes.  But when there is no language, the tax is borne by each beneficiary.  The question that remains is how much estate tax each beneficiary should bear.  It would not make sense if someone who is getting the decedent’s home and the majority of his or her assets pays the same amount of estate tax as someone who might be getting a couple hundred dollars in cash from the estate.

Fortunately, N.J.S.A. §3B:24-4 (a) accounts for this disparity.  It states that in the absence of other directions, the estate tax is apportioned based on how much property you receive from the estate.  The ratio of the property received to the property counted for the estate tax determines the tax burden of the individual.  So for example, if you receive $100,000 worth of money and you have taxable property in an estate worth $700,000, you would only need to pay 1/7 of the calculated estate tax (assuming the person dies before January 1, 2017).  N.J.S.A. §3B:24-4 (c) allows any deductions or gift tax credits already paid to be factored into the calculated estate tax to be apportioned.  Thus, if a beneficiary receives a tax bill for the estate tax, the tax burden will have already factored in any deductions or credits the estate is eligible to receive, and the beneficiary will only pay the proportional share from that final calculated amount.

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.