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The estate tax and the gift tax are two separate taxes

When a person dies, his estate may exceed the New Jersey state or federal estate limit and be subject to an estate tax. An estate tax imposes a tax on the amount of the estate that exceeds the statutorily established limit and provides that tax revenue to the applicable state or federal government. Estate taxes can deplete the overall size and value of an estate, and this New Jersey estate planning blog has discussed some of the ways that an estate plan can help a person avoid this unfortunate part of passing on wealth to loved ones.

One way that a person may bring his estate under the state or federal limit is by issuing gifts to loved ones during his lifetime to lower the overall value of his estate. However, gift givers should also know that gifts of certain sizes may also be taxed. The gift tax imposes a tax on gifts that exceed a statutorily established limit and can reduce the size of a giver's gift due to its imposition.

Gift taxes and estate taxes are separate but related taxes. Gift taxes are assessed against gifts given during a giver's lifetime while estate taxes are imposed against the passage of wealth from a decedent to another party after the decedent's death. Both gift taxes and estate taxes have exceptions that may allow certain gifts and bequests over the statutory limits to be given without the imposition of the taxes.

For example, a person may pay the college tuition of another person as a gift without the gift tax becoming applicable. Additionally, the passage of estate wealth from one spouse to another may not be taxed under the estate tax. Other exceptions apply, and interested parties may consult with their estate planning attorneys to learn more.

This post provides only a brief introduction to the topics of estate and gift taxes. It should not be relied on as legal advice. Those readers who have questions about their estates and how to avoid their loved ones' inheritances being taxed may choose to work with taxation and estate planning legal professionals.

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