From Our “Ask a Question” mailbag: Who Pays the Estate Tax? ((Note, the New Jersey Estate Tax expires in 2018))
“My father at his death gave my brother, and I equal amounts. My brother got life insurance and was named TOD beneficiary of a bank account. I got everything under the Will including the house and remaining cash. The Will says the residue pays all taxes. Do we split the New Jersey Estate Tax on what my brother received outside the Will?”
The New Jersey Estate Tax is a transfer taxes on all assets your father owned at death. Pennsylvania exempts life insurance, but New Jersey and other states do not. Therefore, a tax is due if the value of all the assets including life insurance exceeds the exemption amount.
Include Life Insurance When Calculating the New Jersey Estate Tax.
Even though the life insurance is a non-probate asset, it is added to the “taxable” estate when calculating the Estate Tax. If your father had a good estate planning attorney, that lawyer put a clause in the Will that will determine the source of tax payments. Apportioned means everyone pays their prorated share of the tax due out of what they receive. The residue would pay all estate taxes if your father said the residue pays all taxes. Therefore, the Will’s terms hold the answer.
Who pays the New Jersey Estate Tax On Life Insurance? It Depends.
You stated that the will says the residue pays all taxes. So, it seems that the probate estate pays the entire tax. But, this will depend on a few unknown facts. Did you receive the house and accounts as a particular gift or under the residue? By reviewing the Will, I can provide you a definitive answer.
It pays to have an experienced estate planning lawyer’s advice. In this case, your father might have wished for both sons to inherit equally. But because of his unfamiliarity with the tax rules, the tax burden may fall on your shoulders.
Who Pays the Estate Tax?
In this Post, I tried to answer the question, Who Pays the Estate Tax, given some particular facts. Let me know how I did, comments and questions are welcome!
Contact our office for a free consultation if you have further questions about probate or any other Estate Planning issues.
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Author, Peter Klenk, Esq. LL.M.