Concerned about inheritance tax in NJ

[SSD53NJ]

What is the name of your state? New Jersey
I'm a 53 year old male living on Social Security Disability with my 85 year old mother in her home in New Jersey since 1997. I'm looking for tax advice for the future with regard to how to minimize inheritance tax for myself. My mother is in agreement with whatever is best. She has a will naming myself as executor & sole beneficiary. I am named on her bank accounts, stocks, mutual funds & annuities as TOD & beneficiary to her IRAs & annuitites. She owns her own home in New Jersey & has a summer residence upstate New York in her name . I'm wondering now if it's less costly tax wise if I'm named joint owner on these accounts (except the IRAs of course), rather than beneficiary. She has annuities worth $150,000 that I'm beneficiary. What specifics do you require to give me gudance here? Thank you

 

[anteater]

What is the name of your state? New Jersey
I'm a 53 year old male living on Social Security Disability with my 85 year old mother in her home in New Jersey since 1997. I'm looking for tax advice for the future with regard to how to minimize inheritance tax for myself. My mother is in agreement with whatever is best. She has a will naming myself as executor & sole beneficiary. I am named on her bank accounts, stocks, mutual funds & annuities as TOD & beneficiary to her IRAs & annuitites. She owns her own home in New Jersey & has a summer residence upstate New York in her name . I'm wondering now if it's less costly tax wise if I'm named joint owner on these accounts (except the IRAs of course), rather than beneficiary. She has annuities worth $150,000 that I'm beneficiary. What specifics do you require to give me gudance here? Thank you

New Jersey has both an inheritance tax and an estate tax. Since spouses and lineal descendants are considered "Class A" beneficiaries for inheritance tax purposes and assets transferred to "Class A" beneficiaries are exempt from inheritance tax, you should not have a problem with New Jersey inheritance tax.

If mother's estate is likely to be valued at less than $2M, then there should not be a problem with federal estate tax. But, New Jersey's estate tax kicks in for estates valued at $675,000 or greater. Making you a joint owner is not going to help if federal and/or New Jersey estate tax is likely to be a problem. In the absence of evidence that you actually contributed to the jointly-owned accounts, the presumption will be that they are part of your mother's gross estate.

This is some general information. If it looks like mother's estate will be subject to estate tax, your mother should consult with a tax or probate attorney familiar with estate tax law.

 

[SSD53NJ]

Inheritance Tax in NJ

Her estate may be more than $675,00 but is less than the 2M Federal threshold. What of the following is counted as part of her estate ?? :
House in NJ valued about $310,000,
Summer house in Monticello, NY ? (we are NJ residents)
Annuities: About $150,000
Stocks, mutual funds, bank accounts, Traditional IRAs ?
If the house in Monticello is put in my name & her estate drops below $675,000, wouldn't that exclude the NJ Inheritance or Estate tax?
Why is she not allowed to make me joint owner on some accounts, does NJ have some law against this?
Does my SS Disability status come into play here?
If you could answer all questions, please.

 

[StuckOnStupid]

SSD53NJ, setting aside the specifics of Federal Estate Taxes or NJ Inheritance Tax, here are some universal facts of Estate Planning.

First, Mom SHOULD NOT add your name to the Deeds of her homes as a Joint Owner for two reasons. #1 reason is because the moment she does she also exposes herself to all of your legal problems whether it be a bitter divorce, bankruptcy, at fault car crash or any other type of judgment or lien or legal problem that may manifest in YOUR life now becomes HER problem also because you own her homes just as well as she does.

#2 reason is you will lose the step-up in basis. This could be a very costly mistake based on the difference of your Mom's cost basis (what she paid for the home) vs current market value of the property (what its worth now). By losing the step-up in basis you could cost yourself thousands of dollars in Federal Income Taxes needlessly. If your looking to avoid Probate Court with Mom's two homes set up a Revocable Trust and title both into the trust. This avoids Probate Court and preserves your step-up in basis.

Because your Mom owns real property in two different states when she dies this will trigger a Probate Court proceeding in both New Jersy AND in New York because of her having a Will.

Regarding the annuity, the death benefit will be paid directly to the named beneficiary of the contract. The only Federal Tax that you will owe, if any, will be on the interest earnings that grew tax deferred.

Regarding the IRA, you will owe Federal Income Tax if you take it as a lump sum. The IRS allows what's known as a "stretch IRA" whereby you can take an annual distribution based on your life expectancy mitigating much of the tax burden.

The other assets such as Mutual Funds, Stocks, Bonds, Savings account, etc., that have you listed as Payable On Death or Transfer-On-Death or In-Trust-For will be paid directly to you, if you're living.

The problem with those types of designations is they only work if people die in the correct order. Just because your Mom is 85 and you are 53 there is no guarantee you won't die first.

 

[SSD53NJ]

Thanks for your lengthy response StuckOnStupid.
To touch on some of your points, all I really want to do is drop my inheritance below the $675,000 threshold for Inheritance Tax here in New Jersey. If mom made me joint owner of a bank account or two or a mutual fund, I think that would do it. Her name & SSN would remain first on the account(s), & she would continue to receive the 1099(s) & file taxes if her gross income required her to do so. I don't know if New Jersey would have a problem with this & say this was not my money & I don't have a right to be listed as coowner, but who'se to say, do you or anyone else know?
Secondly, I'm not worried about a lawsuit wiping this income out. That is always a possibility to anyone but not worth worrying about or preventing any financial decisions, I have money of my own to worry about.
The stepped up cost basis is a valid point. If I wanted to sell any property, I would have to pay a lot in capital gains if I became owner. I'm not considering putting her property on my name. I wasn't going to do joint ownership either.
Probate is a simple process in New Jersey, Ive been through it already, New York may be a different issue, does anyone know in this case?
As for death, nobody knows who goes first but statistically is what we're looking at here.
Lastly, does anyone know how much Inheritance tax in New Jersey is? I mean if my inheritance is calculated at 1M, that's $325,000 above the $675,000 threshold, so at what rate is that taxed for a beneficiary on Social Security Disability?

 

[anteater]

Your mother has a perfect right to make anybody she desires a joint owner. However, as I said before:

Making you a joint owner is not going to help if federal and/or New Jersey estate tax is likely to be a problem. In the absence of evidence that you actually contributed to the jointly-owned accounts, the presumption will be that they are part of your mother's gross estate.

You can read up on these topics at the NJ Treasury website:
http://www.state.nj.us/treasury/taxation/index.html?ot7.htm~mainFrame

Or give them a call at 609-292-5033.

 

[SSD53NJ]

Estate not Inheritance Tax

I just learned it's not called Inheritance but Estate Tax that would be the only tax here in New Jersey, since I'm talking about an inheritance passed to a child. Be that as it may, how much would Estate tax be after after the $675,000 threshold is reached? Are you familiar with this?
Also who'se to know the difference if she took $100,000 out of an account & put it in a safe deposit box & used it to pay her bills, just to drop below the threshold?