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Gifts, estates and taxes

On Behalf of | Feb 10, 2023 | ESTATE PLANNING - Estate Planning

Have you considered giving money away during your lifetime to reduce the burden on your estate? While your estate no longer would pay a state tax in New Jersey for the right to transfer assets, there could be other obligations. This could be true even if you give money away during your lifetime.

This article will look at two points. The first is the federal gift tax, and the second is the state rule about giving property away prior to death to evade taxation.

Federal gift taxes

Similar to estate taxes, the federal gift tax is a levy on the right to transfer property. It could apply to you if you transfer large amounts of property without getting anything in return.

Large, in this case, means more than $17,000 per year per person. This is the gift tax exclusion for 2023, and it represents the largest sum you could give to a single person in that year before the transfer potentially being subject to a gift tax.

State taxes close to death

There is a special case in New Jersey where your gift might be subject to taxation if you make it in contemplation of death. The law provides a term of three years before death in which your transfers valuing $500 and above are presumably linked to your estate.

This law, whether by design or coincidence, seems to people who give proactively. However, only transfers that would be subject to the tax upon your death would be subject to the three-year contemplation-of-death rule. Furthermore, people could provide proof that the gifts were simply evidence of your generosity and, therefore, not subject to any sort of taxation outside what the federal government might require.