Estate Planning | NJ Inheritance Taxes | Stock Appreciation

NJ Inheritance TaxLucky you. Your grandfather died and you inherited his portfolio of securities worth a cool $1,000,000.  Found money!  Time to party!  For years you’ve been craving to buy that Tesla Model X.

What About Inheritance Taxes?

But your wife wisely cautions before you begin to sell your inherited securities:  What about inheritance taxes?  Shouldn’t this gift from granddad be subject to income taxes in 2021, the year your bank account increased so unexpectedly?
Your grandfather accumulated these securities over his lifetime. In comparison with the current value, he paid a pittance for these blue chip shares of stock.

There is a point to this article. Your wife’s next question should be:  “Don’t you have to pay capital gains taxes on the difference between what granddad paid per share and what you will get per share?”

We know that both grandpa and grandma’s estates will not be subject to the federal “Estate Tax” (a/k/a “death taxes”) unless they had accumulated over $23 million before they died in 2020.

So much for the stream of revenue which the government earned before the estate tax “exemption” was increased so dramatically from a high of $10.9 million (per married couple) in 2015 to its current amount.   (Candidly, to the best of my knowledge, none of our married clients have accumulated in excess of $23 million, let alone half as much!).

New Jersey Estate Tax

New Jersey terminated its own Estate Tax on gifts which exceeded $675,000 in 2018. Now, New Jersey no longer imposes any Estate or Inheritance Tax when the beneficiary of a transfer-in-case-of-death is a spouse, a parent, a child or a grandchild. The change in the law was in an attempt to keep middle-class and wealthy residents from continuing to leave the state.

So that leaves us to wonder. Are the federal government and the State of New Jersey realizing some income taxes when the beneficiary of an estate sells the appreciated shares of stock which he or she inherited?  Why not do away with the costly (to the government) “step up in basis” rule?

Quite candidly, you as mere beneficiary did not work to earn the money which purchased the securities.  Since 2018 you got these shares free from inheritance or estate taxes when your father or grandfather (who scraped the money together to buy them) died.

What is the problem if, heaven forbid, the revenue-starved U.S. Treasury asked you to fork up 20% on the difference between what dad (or grandpa) paid and what you are getting for these shares when you sell them?

When it came to the “step up in basis” rule, I have asked these same questions ever since the “exemption” was increased to the point where only the estates of the very rich were obliged to pay a federal estate tax.  I am neither a CPA nor a tax lawyer.  I have prepared my share of estate and inheritance tax returns on behalf of descendants and heirs of folks who lived and then died while domiciled in New Jersey.

There is an enigma pertaining to the capital gains on accumulated appreciation question. I will answer it in the next segment.

Until then you can learn more on our Wills and Estate Planning page. Or call us today at 856.235.1234 for assistance on questions of inheritance issues and your estate plan. You may also use our Contact form.