From Our “Ask a Question” mailbag: “My father at his death gave my brother, and I equal amounts. My brother got life insurance, and I got the house and cash. The Will says the residue pays all taxes. Do we split the New Jersey Estate Tax on life insurance?
The New Jersey Estate Tax is a transfer tax on all assets your father owned at death including his life insurance. 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. Typically, the clause Will either say that the taxes are “apportioned” or paid from the residue. Apportioned means everyone pays their prorated share of the tax due out of what they receive. If your father said the residue pays all taxes, then the entire estate tax due is paid out of the residue.
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 specific gift or under the residue? By reviewing the Will I can provide you a definitive answer.
Many wrinkles and complexities are made apparent only with experience. 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.
Contact our office for a free consultation if you have further questions about probate or any other Estate Planning issues.
Wills, Trusts, Probate, and Estate Litigation it’s all we do!
Peter Klenk, Esq.