Thank you to everyone who attended Glenn Schwier, CPA, JD and Marcia Geltman's, Partner, CPA, seminar this morning on New Jersey Estate and Inheritance Tax 207. We hope everyone who came enjoyed the presentation.

1. Federal/New Jersey Estate and
Inheritance Tax
July 25, 2017
Glenn Schwier, CPA, JD
Marcia Geltman, CPA, Partner

2. Why is estate tax planning important?
Besides taxes:
•Estate tax planning gives individuals the ability
to determine how their assets will be
controlled after they are “no longer sitting at
the table”.
•Estate planning also helps to minimize federal
and state estate tax.
2

3. Death of Estate Tax
3

4. Death of the Estate Tax?
4

5. Death of the Estate Tax?
5

6. Death of the Estate Tax?
• Why is Estate Tax viewed as unfair?
• Assets already subject to income tax
• Double tax
• Federal estate tax impacts?
• .2% of Americans
• Between 95th and 99th percentile of all U.S. households
• 1 out of 500 people
• 2.6 million deaths in U.S.
• 4,700 estate tax returns reporting estate tax liability in 2013
• Tax Policy Center
• 20 Small businesses and farms paid any estate tax nationwide
• 2003 exemption was $1 million
• 73,000 return filed
• Rate 40%
• Effective rate 16.6% 2013
6

7. Death of the Estate Tax?
New Jersey Estate Tax
• Based on date of death value
• Anticipated to go away in 2018
New Jersey Inheritance Tax
*Lives on*
Applies to any estate with beneficiaries other than direct descendants, spouse
or charity.
(Under current law great grandchildren are not direct descendants)
7

8. Predicting the Future
• According to the New Jersey Office of Legislative Services, the
revenue from the estate tax in 2014 exceeded $319 million, and the
majority, 59.7 percent, was collected from estates that were worth
more than $2.5 million dollars
• Projected Budget Deficit
8

9. Predicting the Future
One possible scenario
(tried in 2010)
Federal Estate Tax elimination
No step up in Basis
• Canadian approach
• Income tax of unrealized gains at death
• All property deemed sold at death
• Including retirement plans - RRIF and RRSP
• Spouse/common law partner – deferred until death of surviving spouse
• 50% gain taxed
• Depreciation recapture fully taxed
9

10. Federal and State
Estate Tax
10

11. Federal Estate Tax
• Unified Gift and Estate Tax Credit
• Federal Highest Marginal Estate and Gift tax rate
40%
• Federal Estate/Gift Tax/GST exemption - $5,490,000
in 2017 ($5,450,000 in 2016) *portability
• Estate tax return Form 706 due 9 months after DOD
• Gift tax return Form 709 due by 4/15 of year
following gift.
11

12. New Jersey Estate and Inheritance Tax
NJ has two types of tax which impact an estate
•The estate tax is based on the value of the
assets, whereas,
•The inheritance tax is based on who receives
the assets
A credit is allowed on the Estate Tax Return for taxes paid on the Inheritance
Tax Return
12

13. New Jersey Estate Tax Forms
New Jersey Estate Tax Form IT-EST
• Due 9 months after DOD (same as 706)
• 2 optional methods to calculate tax:
Based on 2001 Federal Form 706
Simplified Method Based on IT-R
New Jersey Inheritance Tax Form
• Due 8 months after DOD
IT-R Resident
IT-NR Non-Resident
13

14. New Jersey Estate Tax
2018 Scheduled to go away
2017 New Jersey Estate Tax Exemption $2,000,000
• No portability
• Exemption goes away above $2,000,000
• Tax rates range from 4% -16%
For 2016:
• Tax on estate of about $700,000 $10,000
• Tax on $1 million estate about $33,000
• Tax on $2 million estate about $100,000
• Tax on $3 million estate about $200,000
14

15. New Jersey Inheritance Tax
• New Jersey Inheritance Tax Rates (11% to 16%)
• CLASS A – EXEMPT
• CLASS C - $25,000
• CLASS D - $500
Class D - If >$500 no exemption
15

16. Inheritance Tax - Beneficiary Classes
16
Class A
• Spouse
• Civil Union
• Domestic Partner
• Children
• Grandchildren
• Stepchild – issue of stepchildren are CLASS D
Class C
Class D
• Brother/Sister
• Niece/Nephew, Friend/son-in-law or daughter-in-law
Class E
• State
• Federal Government
• Religious
• Charity
 Remainder Beneficiary
 Final Accounting to Attorney General

17. New Jersey Inheritance Tax Exemptions
Charitable transfers for the use of an educational institution, church,
hospital, public library, etc.
Payments from the New Jersey Public Employees Retirement System,
the New Jersey Teachers’ Pension and Annuity Fund, or the New Jersey
Police and Fireman’s Retirement System
Federal Civil Service Retirement benefits payable to a beneficiary other
than the deceased person’s estate
Monies received by the estate as compensation for wrongful death
under Sections 1, 2, 3 and 4 of the New Jersey Death Act are exempt
17

18. Gross State
Both Probate and Non-Probate assets are included in the estate.
• Probate Property
• Titled in name of decedent
• Will controls
• Non-Probate Property (value included in estate but disposition isn’t governed by will, but
rather governed by a legal document)
• Contract
• Life Insurance** (see next slide)
• Retirement plan with named beneficiary
• Joint account with right of survivorship for other than spouse, the assumption is that it is
owned 100% by decedent unless proven otherwise.
• POD
• Real Property held as Tenants by Entirety
18

19. Life Insurance
Estate Tax - Included in the estate only if the decedent had incidence
of ownership or the estate is the beneficiary of the policy.
Inheritance Tax – Included in the estate, if the estate (including
executor or administrator of the estate) is the beneficiary of the
policy.
19

20. Are New Jersey residents subject to tax on
assets held out of state?
Residents must include all assets held everywhere: real property,
tangible property, intangible property
The NJ Estate Tax is reduced by the percentage allocated to out of
state real and tangible property (proportional)
20

21. Are nonresidents subject to NJ estate and
inheritance tax?
• Non-resident is subject to NJ Inheritance Tax if they own real or
tangible property held in NJ and the beneficiary is other than a Class
A beneficiary.
• Not subject to NJ Estate Tax
21

22. Property held in LLC
• Old Rules
Both NY and NJ recognized the LLC as a legal entity and treated the assets as intangible
assets thus not taxable for inheritance tax purposes.
Example: Florida resident owns property in NJ held in LLC. On his death the NJ property
held in the LLC will not be subject to NJ Inheritance Tax.
• New Rules for NY
New York now looks through the LLC as a disregarded entity and treats the property as
being held n NY for NY Estate Tax purposes.
22

23. To File or Not to File
• Frank Florida is a NJ Nonresident who’s only asset is a
$2,500,000 bank account in NJ passing to his children?
Fed □ NJ Est □ NJ Inh □ None □
• Does the answer change if only asset is $2,500,000 beach
house in NJ passing to his children?
Fed □ NJ Est □ NJ Inh □ None □
• Does the answer change if only asset is $2,500,000 beach
house in NJ passing to his Nephew?
Fed □ NJ Est □ NJ Inh □ None □
23

24. To File or Not to File
• Neil New Jersey passes away in 2017 with gross estate of $10,000,000
all passing to his children?
Fed □ NJ Est □ NJ Inh □ None □
• Does the answer change if Neil passes away in 2018 rather
than 2017?
Fed □ NJ Est □ NJ Inh □ None □
• Does the answer change if Neil’s gross estate is $1,500,000?
Fed □ NJ Est □ NJ Inh □ None □
24

25. New Jersey Estate
&
Inheritance Tax
Differences
25

26. New Jersey Estate Inheritance Tax Differences.
Estate Tax is based on Federal law, whereas Inheritance Tax has
separate rules.
• NJ Estate Tax Credit for Inheritance Tax Paid
• Inheritance Tax Based on Beneficiary v Estate Tax based on value
• Inheritance Tax 3 Year Look Back for gifts. Estate Tax lookback
primary to life insurance.
• Life Insurance paid to named beneficiary not subject to Inheritance
Tax. Life insurance owned by decedent or paid to estate is included
for Estate Tax purposes.
• Tenants by Entirety not Included on Inheritance Tax Return
• Domestic Partner
Class A not subject to inheritance tax, but is subject to Estate Tax
26

27. Tax Waivers?
•What are tax waivers?
•Why do you need them?
•How do you get them?
27

28. Tax Waiver Required
• Bank Accounts New Jersey or National Bank
• 50% Can be Released
• Brokerage Accounts doing business in New Jersey
• New Jersey Corporation
• New Jersey Bonds
• Real Property
• Nonresident – only for real property located in New Jersey for
inheritance tax L-9 NR
28

29. L-8
Self executing waiver for NJ Bank Accounts, Stock, Brokerage Accounts
and Investment Accounts.
Can only be used if:
• All beneficiaries are Class A
• There are no disclaimers filed
• Gross estate is under the minimum filing threshold
29

30. L-9
• L-9 Affidavit of Resident Requesting Release of Real property
• Estate must be under $2,000,000 and all Class A Beneficiaries
• Required document to submit with L-9. Must be mailed to NJ.
Allow time for waiver to be issued. L-9 NR for non-residents.
 Last full year tax return
 List of estate assets
 List of beneficiaries
 Copy of letter testamentary/administration
 Death certificate
 Will/Codicils
 Description of property – address, market value, assessed value
 Owner’s of record
 Appraisal
30

31. Other Forms
• L-4 Preliminary Report to Secure Consent to Transfer where Return
cannot be Presently Completed
31

32. Estate & Gift Tax
Impact of Asset Titling
32

33. Asset Titling Estate and
Gift Tax Impact
• Real estate
• Tenants by entirety
• Joint tenant with right of survivorship
• Spouse 50% estate
• Non-spouse
• Estate tax - Consideration furnished by other joint owner
• Gift
• State – allows partition of property
• Monthly payment
• Gift if done can sever joint tenancy with right of survivorship
• Tenants in Common
• Gift time of transfer
• Donee ownership interest - Not included in estate
33

34. Real Estate Titling
• Life Estate
• Estate tax inclusion
• Gift tax
• Retained interest valued at zero
• Unless qualified interest
• Example - QPRT and PRT
• IRS actuarial tables based on the currently applicable § 7520 interest rate. The
relevant table here is Table S in IRS Publication 1457.
• Subsequent gift of life estate/estate tax inclusion
• Reduction in taxable gifts
• lesser of the value of the life estate at the time of retention
• or upon the subsequent transfer [Treasury Regulations section 25-2702-6(b)(1)
34

35. Asset Titling
Estate and Gift Tax Impact
• Gift tax
• Bank Account and Brokerage
• Joint tenant with right of survivorship
• No gift until withdrawn
• Savings bond
• Payable to self and donee
• No gift until cashed in by donee
• Estate tax
• Consideration furnished by other joint owner
35

36. Tax Apportionment Clause
• New Jersey Estate Tax Apportionment
• Will should contain tax clause
• Absent tax clause
• Inheritance Tax – Paid by respective beneficiary creating the tax
• Estate Tax – Passing under Will residuary, outside the Will – apportioned
36

37. Don’t get “tripped up” on
these issues.
37

38. Tax Apportionment Clause and Phantom Tax
•Pitfalls of Tax Apportionment
• Loss of Residuary Paying Tax on Non-Probate
Assets
• Beneficiaries Paying Unintended Tax on Bequests
or Non-Probate Property
• Phantom Tax
38

39. Phantom Tax
• Estate of Stevenson vs. Director, Division of Taxation
• Residuary to Marital Trust
• Marital Trust pay taxes
• No Actual Federal Taxes Due
• New Jersey Law frozen as of 2001
• In 2001, Estate would have owed Federal Taxes
• New Jersey interprets estate paying Federal Tax reducing the Marital
Trust
• Resulting Increased New Jersey Taxable Estate
• How to Avoid
39

40. Example of Phantom NJ Tax
2016 estate
Estate value $5 million
$3 million to spouse via a marital trust
$2 million to child
Per will any tax would be paid by marital trust
No Federal tax due since $2 million to non spouse is less than Federal exemption.
NJ Estate taxes on $2 million would be approximately $100,000
But remember NJ tax is based on frozen 2001 federal tax where exemption was $675,000
Therefore, in 2001, this estate would have owed about $560,250 in Federal estate tax.
By reducing the marital trust portion by $560,250, the spouse theoretically only received $2,439,750
Thereby, increasing the nonmarital assets to rounding up to approximately $2.5 million.
On $2.5 million the NJ estate tax would be about $139,000.
The state would assess $139,000.
40

41. 2017 Update
41

42. Regulations Under Review
• Proposed regulations under Sec. 103 on the definition of political subdivision (REG-129067-15);
• Temporary regulations under Sec. 337(d) on certain transfers of property to regulated investment companies
(RICs) and real estate investment trusts (REITs) (T.D. 9770);
• Final regulations under Sec. 7602 on the participation of a person described in Sec. 6103(n) in a summons
interview (T.D. 9778);
• Proposed regulations under Sec. 2704 on restrictions on liquidation of
an interest for estate, gift, and generation-skipping transfer taxes (REG-
163113-02);
• Temporary regulations under Sec. 752 on liabilities recognized as recourse partnership liabilities (T.D.
9788);
• Final and temporary regulations under Sec. 385 on the treatment of certain interests in corporations as
stock or indebtedness (T.D. 9790);
• Final regulations under Sec. 987 on income and currency gain or loss with respect to a Sec. 987 qualified
business unit (T.D. 9794); and
• Final regulations under Sec. 367 on the treatment of certain transfers of property to foreign
corporations (T.D. 9803).
42

43. IRS Discount Regulations
• Proposed Regulations
• IRC 2704 - Close family business estate/gift tax loophole
• Limit valuation discounts
• Deaths within three years
• Add in minority discount for lifetime transfers into gross estate of donor
• Disregarded restrictions
• State law defaults not considered
• Unrelated parties not recognized for removal of disregarded restrictions by family test
• Reality
• Transfers between family members
• Family members control the entity
• Value would not consider restrictions on interest and lapse of certain rights
• Effective date - regulations are finalized
43

44. Portability IRC 2010
• US Citizens and Residents
• Decedent Spouse uses less than Maximum Federal Estate Tax Exclusion
• Surviving Spouse DSUEA
• Deceased spouse unused exclusion amount
• Deceased Spouse passed after 2010
• Must make the election on timely filed Federal Form 706
• Statute of Limitation does not apply to IRS Examination of whether
DSUEA available to surviving spouse
• Professional Liability
• What if surviving spouse wins lottery
• Should document file client did not want to file Form 706
44

45. Portability DSUEA
• DSUEA can be used for Gift Tax Purposes
• Last Deceased Spouse Restriction
• Do not pass Deceased Spouse DSUEA to Surviving Spouse – New
Spouse
• Remarriage – Surviving spouse only has last deceased spouse DSUEA
• Gifting during second marriage of DSUEA
• 2nd Spouse receives - Lesser of applicable exclusion amount minus gifts
or amount of basic exclusion
45

46. Portability
• No Generation Skipping Tax Portability
• Non-Citizen/Non-Resident Does Not Have Portability
• DSUEA Not Inflation Adjusted
• No New Jersey Estate Tax Portability
46

47. Portability
• Rev. Proc. 2017-34
• Previously Rev. Proc. 2014-18 – ended December 31, 2014
• Permanent automatic extension
• U.S. citizen
• Return not yet filed
• Filed not eligible
• Return not otherwise required to be filed
• Within 2 years of decedent’s death
• “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILTIY UNDER
2010(c)(5)(A)” at the top of Form 706
• Not eligible for 2 year extension under new rules
• Retroactive portability Rev. Proc. 2017-34
• Any spouse passed away in 2011 or later
• Situation where both spouses passed away and owed estate tax
• File amended return receive refund up to $2 million
• Deadline January 2nd 2018
47

48. DEADLINE TO FILE FORM 706 TO CLAIM PORTABILITY:
ORIGINAL VS NEW RULES UNDER REV. PROC. 2017-34
48
Decedent’s
Date of Death
OLD
RULES
NEW
RULES
9 - MONTH
9-MONTH
6-MONTH
15-MONTH
Normal Filing Deadline
For Form 706
Normal Filing Deadline For
Form 706
Deadline for
Portability
Automatic Extension
Claimed When Form
706 is Filed*
New Deadline
For Portability
*If gross estate otherwise below Form 706 required filing threshold
Or
Jan. 2. 2018.
If later
6-Month Extension
(Must Be Filed By Initial
9-Month Deadline)

49. Portability example
• Same Sex couple, Dave and Edward, are married in 2012 in state that legally recognizes same sex
marriages.
• IRS doesn’t recognize married when Dave passes away with three million in assets in December
2012.
• No Federal estate tax return filed since under threshold
• IRS Revenue Ruling 2013-17 recognizes same-sex legal marriage.
• Edward passes away in 2016 with $10 million in assets.
• Pays approximately 2 million in estate tax.
• Dave’s executor files 706 by January 2, 2018.
• Elects portability under Rev. Proc. 2017-34
• Edward’s executor amends his Federal Form 706 on January 3, 2018.
• Edward’s estate amends the return within 3 years of date of death.
• Estate receives $2 million refund.
49

50. Form 8971
• Death
• Step up in Basis
• Consistent Basis Reporting
• Between Estate & Beneficiary
• Estate
• Low value
• Beneficiary
• High value
• Basis cannot exceed estate tax return value
• Estate required to file Federal Estate tax return Form 706
• Earlier of 30 days after Estate tax return filed or due to be filed
• Decedent, executor, and beneficiaries’ names and tax id numbers
• Schedule A - Beneficiary receives their assets
• No distribution – list of property could be used for distribution
• Changed in assets distributed to beneficiary – supplemental Schedule A
• Beneficiary transfer property to related transferee
• Schedule A must be refiled within 30 days of that transfer
• Doesn’t apply to filing only for portability
• Cash, tangible property under $3,000, property sold by estate and IRD assets (no step up in basis)
• Not filed
• Penalties for executor
• Estimated to raise 1.5 billion in revenue
• Cost of compliance?
50

51. Estate Closing Letter
• Estate Closing Letter
• Not issued automatically after Form 706 estate tax return is filed
• Instead, an estate closing letter must be requested by the taxpayer
• Request made at least four months beyond the date that the estate tax return was filed.
The new rules apply to all estate tax returns filed on/after June 1, 2015.
51

52. Estate Tax Deductions
52

53. Deductions from Gross Estate
• Legal and Accounting (can use estimates)
• Funeral Expenses
• Executor Fees** (see additional slide)
• Real Estate Commissions ** (see additional slide)
• Liabilities owed at DOD
• Administrative expenses
o Appraisals
o Executor fees
o Costs to dispose of assets
53

54. Deductions
18:26-7.9. Administration expenses
• A deduction is allowed for all the reasonable and ordinary expenses of
administering a decedent's estate including reasonable and ordinary
executors, administrators and attorneys fees, and, in addition, the reasonable
cost incurred on an appeal from a determination of the Inheritance Tax
Bureau.
54

55. Commissions from Real Estate Sale
• Estate Tax –if deductible under local probate laws which in NJ follow federal
• Inheritance Tax Deduction
• 18:26-7.12. Real estate broker's commissions
• (a) No deduction is allowed for commissions paid or payable to a real estate broker
or agent
in connection with the sale of real estate of which a decedent dies except where:
• 1. The real estate was the subject of a contract of sale entered into by the
decedent in his lifetime; or
• 2. The real estate is actually sold by the executor or administrator (the real estate
must be sold by the representative of an estate and not the beneficiary(s) in order
to qualify); or
• 3. It is necessary in the administration of the decedent's estate to effect a sale of
said real estate for the
purpose of liquidating debts, or the payment of the expenses of administration of
the estate, or for the payment of legacies.
55

56. Executor Commissions
• Probate Assets
• 5% up to $200,000
• 3.5% up to $1,000,000
• 2% over $1,000,000
• Additional Executor 1%
Example: $3 million estate with 2 executors
5% of first $200,000 = $10,000
3.5% of next $800,000 = $28,000
2% of balance = $40,000
1% additional = $30,000
Total $108,000
56

57. Executor’s commission on Real Estate
• Inheritance tax
• 18:26-7.10. Executor's and administrator's expenses.
• (d) Executor's or administrator's commissions are allowed on real estate that is actually
sold by the executor or administrator or which is expressly directed to be sold by the
terms of the decedent's will. The real estate must be sold by the representative and not
the beneficiary(s) in order to qualify.
• Estate Tax
• Generally deductible
57

58. Preservation of Property
Inheritance Tax
• 18:26-7.13. Storage expense
• (a) No deduction is allowed for expenses incurred by an
executor or administrator for the storage or preservation of
tangible personal property except where the nature of the
property or the value thereof is such that delivery to the
legatee thereof is not possible within a reasonable time
subsequent to death.
• (b) No deduction shall be allowed for expenses incurred for
the preservation, maintenance or upkeep of real estate of
which a decedent dies, either individually, jointly or as a
tenant in common.
58

59. Preservation of Property
Estate Tax
• Carrying expenses
• Expenses necessarily incurred in preserving and distributing the estate, including the
cost of storing or maintaining property of the estate if it is impossible to make
immediate distribution to the beneficiaries, are deductible to the extent permitted
under Reg § 20.2053-1.
• NJ Estate Tax
• Federal estate tax regulations allowance for deduction of costs for maintaining property
of the estate is not limitless. It is allowed provided (i) it is impossible to effect immediate
distribution to the beneficiaries; (ii) the expenses are not for additions or improvements;
and (iii) the expenses are not incurred for a longer period than the executor is
reasonably required to retain the property. Treas. Reg. 20.2053-3(d). Lillian Garris Booth
v Director
59

60. Attorney fees
• Inheritance Tax
• 18:26-7.11. Counsel fees.
• (a) The deduction allowable for counsel fees shall be determined on the basis of their
reasonableness. The appraised value of the decedent's estate, for New Jersey
Inheritance Tax and Federal Estate Tax purposes shall not be considered as the criterion
for the determination of the amount allowable as a deduction for counsel fees.
• (b) No deduction shall be allowed for counsel fees paid to an attorney who is not a
member of the Bar of New Jersey, except in cases where the services rendered by such
counsel relate to matters not involving the New Jersey Inheritance Tax proceedings.
• (c) The Director may, in his discretion, require the submission of an affidavit of services
by counsel for the personal representative of an estate where it appears that the
amount claimed as a deduction for counsel fees is other than ordinary or reasonable.
• Estate Tax – (b) above does not apply
60

61. Inheritance Tax debts
• 18:26-7.2. Decedent's debts
• All debts owing at the date of a decedent's death are deductible from the
property comprising such decedent's estate unless the property for which
the debt is owing or for which it is secured is not subject to the New Jersey
Inheritance Tax.
• 18:26-7.3. Debts secured by out-of-State real property
• The debts of a resident decedent owing for or secured by real property
outside this State are not allowed as a deduction, unless such debt exceeds
the value of the property securing it or for which it was contracted, in which
event only that amount by which such debt exceeds the value of the out-of-
State realty is permitted as a deduction.
61

62. Deduction Taxes
• Inheritance Tax
• 18:26-7.16. Transfer taxes due other jurisdictions
• (a) A deduction is allowed for any transfer, succession or legacy taxes paid or payable to
any state or territory of the United States, including the District of Columbia or any
foreign country provided the property upon which such tax is paid or payable is subject
to the New Jersey Transfer Inheritance Tax.
• (b) The amount due or paid the United States Government as a Federal Estate Tax is not
allowable as a deduction.
• 18:26-7.15. State, county and local taxes.
• (a) A deduction is permitted for any State, county and municipal taxes owing and unpaid
at the date of death on any real property of a decedent which is subject to the New
Jersey Inheritance Tax. The amount allowable as a deduction on such property for the
current fiscal year, however, is limited to that sum representing unpaid taxes as the
elapsed portion of said year bears to the full year. No deduction is allowed for state,
county or municipal taxes assessed or accruing, subsequent to the death of the
decedent.
• (b) No deduction for unpaid state, county and municipal taxes is allowed where the
realty owned by the decedent was held by such decedent and a surviving spouse/civil
union partner as tenants by the entirety, unless it can be shown that during his lifetime,
the decedent appropriated all of the income from such property without having paid
any of the state, county and municipal taxes and other charges assessed against the
realty.
62

63. Deductions
• 18:26-7.14. Operating costs of business
• No deduction is allowed for the cost of operating a business in which the
decedent had an interest at death. These expenses are not deemed an
ordinary expense of administration and should be charged as an expense of
the business.
63

64. Income Tax
64

65. Estate Income Tax
• 1040 Prior to Death
• 1041 Estate Income Post Death
• Estate Fiscal Year (must be elected on timely filed return)
OR
• Calendar Year
• Trust Calendar Year
65

66. Where Deductions are Claimed
• Medical 706 or Final 1040
• Funeral 706
• Administration 706 or 1041
• Mortgages - 706
• NJ Property
• Non-NJ Property
• Debts 706
• Real Estate Taxes Post Death 1041
66

67. Income in Respect of Decedent (IRD)
• Income that was owed to a decedent at the time of death
• Pass through to beneficiary or estate as income
• Subject to income tax
• Double tax problem
• Federal tax IRD Deduction – not a credit
• Must itemize
• Not limited to 2% AGI
• Claim same year receive income
67

68. Income in Respect of Decedent
• Retirement Plan Distributions
• IRA
• 401K
• 403(b)
• US Savings Bonds
• Installment Sale Deferred Gain
• Annuity
• Unpaid Salary, Fees, Commission and Bonuses
• Deferred Compensation Benefits
• Accrued but Unpaid Interest, Dividends and Rent
68

69. Income in Respect of Decedent
• Beneficiary Shares
• Calculate the 706 with and without the IRD, the differential is the
amount of the deduction.
• The IRD deduction only applies if there was an actual Federal Estate Tax
PAID on form 706
• Federal state tax paid on form 706 does NOT include utilization of the
unified credit
• The IRD deduction is NOT a credit, so the double tax is not eliminated.
The IRD deduction eliminates only a portion of the double tax.
• The IRD deduction does not apply for NJ income tax purposes, so the
double tax does hit a NJ recipient beneficiary or estate.
69

70. Basis of Inherited Property
•Step Up in Basis
• Date of Death Value
• No gain up to step up in basis for estate or
beneficiary
70

71. Planning Strategies
71

72. New Jersey Estate Tax Planning
• Gifting
• New Jersey NO Gift Tax – Creates estate planning opportunity
• Move out of New Jersey
• New Jersey QTIP
72

73. New Jersey Estate Tax Planning
Gifting Example
• Example: John has $5 Million
 On December 1, 2017 he gifts $4.9 million to his children
 Files gift tax return
 John passes away December 31, 2015 with $100,000
 John’s estate must file New Jersey estate tax return
 4.9 million gift grosses up estate to over $2,000,000
 NJ taxes only $100,000 left in estate
 Under federal filing requirement – NO FEDERAL TAX
 File for Portability
73

74. Disclaimer Will
• Why Use?
• Tax Flexibility – Post Mortem Planning
• Outright to Spouse Preferred by Clients
• Federal Credit Shelter Trust
• Over Funded Trust
 New Jersey Taxable Estate
 Spouse receives no property outright
• Portability
• Negatives
• Requires Filing Disclaimer Properly
• Can Disclaim Anyway
74

75. Qualified Disclaimer
• Federal Nine Months
• No 9 Month Restriction for New Jersey
• Irrevocable
• Written
• No Benefit Accepted
• Without Direction of Disclaimant
• Spouse Trust Beneficiary
• Disclaimer Provided to:
• Transferor of Interest
• Legal Representative
• Holder of Legal Title
• Person in Possession
• Surrogate or Superior Court
• Estate and Inheritance Tax Return
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76. Nonresident Alien Estate Tax 101
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77. Nonresident Alien (NRA)
• Who is not Nonresident Alien?
• Income Tax
• U.S. citizen
• Green card
• Substantial presence test
• 31 days in current year
• 183 days during 3 year period
• weighted
• All days current year
• 1/3 preceding year
• 1/6 3rd year
• Visa type, closer connection and income tax treaty
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78. Nonresident Alien (NRA)
• Why NRA status important?
• Income Tax
• U.S. citizens and residents
• Worldwide income and U.S. reporting foreign assets
• NRA
• U.S. source income only
• Estate tax
• U.S. Citizen and residents
• Estate Tax – all assets
• NRA
• U.S. situs assets
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79. NRA Estate Tax
• U.S. citizen
• Residency
• Substantial presence test
• Does not apply
• Based on domicile
• Intention
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80. U.S vs NRA Estate & Gift Tax Comparison
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U.S. Person/Resident NRA
Estate Tax exemption amount 5,490,000 60,000
Lifetime Gift Tax Exemption 5,490,000 0
Annual Gift tax Exclusion 14,000 per donee 14,000 per donee
Gift splitting between spouses Yes, both spouses No
Marital deduction for lifetime gifts Unlimited if recipient is
U.S. citizen
$149,000 per year if recipient spouse
is a non-U.S. citizen,
No lifetime QDOT
Marital deduction for Testamentary
Bequest
Unlimited if recipient is
U.S. citizen
0 if recipient is non-U.S. citizen, QDOT
available
Top Estate and Gift tax rate 40% 40%
Portability Yes No

81. NRA Estate & Gift Tax Comparison
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Estate tax Gift tax
Property type Yes no Yes no
Tangible personal property
Artwork, jewelry
x x
Currency in U.S. safe deposit box x x
U.S. real estate X x
Foreign real estate x x
Foreign stocks x x
U.S. stock x X
Life Insurance on another cash value x X
Life insurance death benefit X X

82. NRA Estate & Gift Tax Comparison
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Estate tax Gift tax
Property type Yes no Yes no
U.S States/Muni Bonds X X
U.S. Partnership/LLC interests X X
Cash deposits in U.S. bank X X
Retirement Plans X N/A

83. Estate Tax – Nonresident Alien (NRA)
• Property held in NRA name
• Situs of property
• Property situated/located in U.S.
• At time of transfer or
• At time of death
• IRC 2035-2038 apply
• Tangible
• Artwork on loan to museum – considered not situated in U.S.
• Visitor's assets not situated in U.S.
• Degree of permanence required
• Real – physically located in U.S.
• Timber, mineral interest, crops
• Some intangible property
• Exclusion
• $60,000
• Treaty
• UK, Canada, Australia,
• 16 total
• Marital Deduction
• Only if surviving spouse U.S. Citizen
• QDOT
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84. NRA Gross Estate
• U.S. Corporation
• Subject to U.S. estate tax
• Foreign Corporation
• Not subject to U.S. estate tax
• Partnership
• Estate tax
• Aggregate vs entity theory
• U.S. formed
• Trade or business
• Subject to U.S. estate tax
• Foreign formed
• Doing business in U.S.?
• Individual/single member LLC/disregarded entity
• Subject to estate tax
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85. NRA Gross Estate
• Bank deposits, deposits with insurance companies & portfolio debt
• Not subject to U.S. estate tax
• Debt obligations
• Taxable where evidence of indebtedness located
• Life insurance
• Not subject to estate tax
• Value of policy on another not protected under this rule
• IRA
• Look thru since custodial account
• Pension and profit sharing plans
• U.S.
• Annuities
• U.S. issuer
• Trust
• Assets are situated in the U.S. and
• Would have been included in gross estate if U.S. citizen or resident
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86. NRA Gift Tax
• What property is subject to U.S. Gift Tax
• Situs
• Property in U.S. only
• Tangible – physically located in U.S.
• Cash
• Safe deposit box in U.S.
• Artwork on loan to museum – not exception
• Property not considered situated in U.S.
• Visitor's assets not situated in U.S.
• Degree of permanence required
• Real – physically located in U.S.
• Timber, mineral interest, crops
• Only leases long enough to be considered real property under local
law
• Intangible property
• Not subject to gift tax
• Written evidence of property interest is treated as property itself
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87. NRA Gift Tax
• Gift tax
• Annual exclusion
• No marital deduction
• Noncitizen spouse $149,000 per year
• No gift splitting
• No lifetime QDOT
• Check from U.S. bank
• Subject to gift tax – tangible property
• Re-titling bank account interest
• May be considered debt obligation of U.S. person – intangible property
• Not subject to gift tax
• Special Rules
• Joint Real property
• Noncitizen spouse gift at termination of joint interest
• Joint Personal property
• 50% on formation
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88. NRA Gift Tax
• Foreign Corporation
• Not subject to U.S. gift tax
• Gift of U.S. Corporation or partnership interest
• Intangible property no gift tax
• Real and tangible property held by Corporation
• not subject to gift tax
• Debts of U.S. persons
• Not subject to gift tax
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89. Beware of the Cloud
• The Cloud rule
• Time for determining situs
• NRA transfer property subject to
• IRC 2035 through 2038
• Deem part of gross estate if situated in U.S. at
• Time of transfer or
• Time of death
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90. Beware of the Cloud
• Example – PLR 9507044
• Grantor funds trust with U.S. stocks in 1923 and
retained right to income for life
• IRC 2036 applies
• Trustee sell U.S. stock
• Replaces with non U.S. situs assets
• Always subject to cloud of U.S. estate tax
• Shifting situs of asset
• Bonafide sale
• Avoid IRC 2036 and 2038
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91. Estate Tax Deductions
• No Marital deduction if no U.S. citizen spouse
• Qualified Domestic Trust (QDOT)
• Charitable
• U.S. charity
• Funeral, administrative, debts and losses
• Allocation based on gross estate
• Nonrecourse debt deductible in full
• Other debt allocated based on gross estate
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92. NRA Estate and Gift Tax
Structuring Ownership in U.S. assets
• U.S. Corporation
• No capital gains
• 2 levels of tax
• Corporation income tax
• Dividends
• NRA 30% withholding
• U.S. estate tax
• Tax treaty
• Advantages
• No gift tax
• Liability protection
• No foreign withholding
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93. NRA Estate and Gift Tax
Structuring Ownership in U.S. assets
• Foreign Corporation
• Disadvantages
• U.S. Corporate taxes
• No capital gains rate
• Branch profits tax
• Dividend equivalent
• Extent not reinvested in property or U.S. trade or business
• U.S. income tax treaty
• Refinancing proceeds
• Advantages
• No U.S. estate tax
• No U.S. gift tax
• Sale of stock of foreign corp not subject to U.S. income tax
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94. NRA Estate and Gift Tax
Structuring Ownership in U.S. assets
• Individual/single member LLC
• Advantages
• One level of tax
• Capital gains rates
• Repatriation of funds
• Disadvantages
• Estate tax
• Gift tax
• Partnership
• Estate tax
• Aggregate vs entity theory
• Possibly no gift tax
• Intangible property
• Factors
• Age of investor factor
• Length of holding period
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95. Form 3520 and 3520-A
• U.S. persons receiving funds from outside U.S.
• Form 3520 required to be filed
• $100,000
• Inheritance
• Bequest
• Distribution from Foreign Trust
• Transfer assets to foreign trust
• Form 3520 & 3520-A
• U.S. owner/grantor
• IRC 671-679
• Foreign trust
• Must file with IRS
• Provide U.S. owner and U.S. beneficiaries required annual statements
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96. Thank You
• Thank you for participating in our seminar.
• Please do not hesitate to contact us should you have any questions or
need assistance.
Glenn Schwier, CPA, JD
Marcia Geltman, CPA
Nisivoccia LLP
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