It is a commonly held belief that property that passes outside of probate, such as savings bonds, is not subject to federal or New Jersey estate taxes. However, whether these assets are taxed or not depends on the value of the decedent's net estate and taxable gifts. Individuals who are estate planning may wish to calculate the net worth of their estate in order to determine if any estate taxes will be owed on assets that pass outside of their wills. This may ensure that there are no surprises later on.
To determine if savings bonds-which are typically assets designated as payable on death-will be taxed, an individual must calculate the gross estate. This typically includes the assets passed in a will, retirement accounts, life insurance and assets payable on death. Other types of property may be included in this figure as well.
Once the gross amount of the estate is calculated, the net estate can be determined by subtracting the amount for spousal bequests, charitable donations, estate administration costs and debts. New Jersey estate tax is only factored in if the net estate exceeds $675,000. An estate is not subject to be federally taxed unless its net estate exceeds $5 million.
It can be very challenging to make sense of an estate in order to determine if any estate taxes will be owed. Individuals may need to consult someone who is knowledgeable about the nuances of estate planning and can help them make the best decisions about how to pass on their assets. Planning ahead may allow individuals to allocate their assets in such a way as to protect their estate from being taxed.
Source: nj.com, "Biz Brain: Are savings bonds subject to federal and state estate taxes?" Karin Price, Jan. 7, 2013