Estate planners are aware that the federal estate tax law was made permanent and applies when assets exceed $5 million, as indexed for inflation. For the year 2014, the amount that can pass tax free is $5.34 million. Assets transferred in excess of that amount to anyone other than a spouse will be subject to federal estate tax at the rate of 40 percent. This tax is on top of the New Jersey estate tax that starts at a mere $675,000, though the rates are considerably lower.
What some may not realize is that U.S. citizens and U.S. residents are subject to federal estate tax on their worldwide estate. Section 2031(a) of the Internal Revenue Code states that the gross estate includes all property wherever situated. “Wherever situated” includes not only domestically held assets, but also assets held in foreign countries. The estate tax on worldwide assets is ameliorated when any “estate, inheritance, legacy or succession taxes” are actually paid to any foreign country with respect to any properties situated within such foreign country and included in the gross estate. But many foreign countries do not impose such taxes, so the federal estate tax must be fully paid to our U.S. Treasury.
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