
James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comFirm Insights
Author: James F. McDonough
Date: July 29, 2015

Of Counsel
732-568-8360 jmcdonough@sh-law.comThe comment was written in response to our blog that described the impact of this state’s Inheritance Tax and Estate Tax upon New Jersey resident decedents.
The comment was made by a family business owner who was unaware of the death tax burden imposed by New Jersey upon his estate. The $675,000 per person state exemption would not be large enough to protect the transmission of wealth from him and his wife to their children. After considering various options which included extensive tax planning, he decided to relocate his business to Florida. The death tax and income tax savings more than offset the cost of the move. Not only did he and his spouse move to Florida, but they persuaded all of their children to relocate as well.
Two accountants that I know well began to discuss the outbound migration of their client base, who were long-term residents of New Jersey. They claimed that thirty-six of their high net worth clients have moved themselves and their significant net worth to other states. They commented that they recommended relocation from New Jersey to twice that number of clients and expect more to follow.
At that same function, an attorney complained that the New Jersey would not accept the federal estate tax treatment of a self-cancelling installment note. IRS accepted the federal estate tax return as filed without change issued a closing letter. By doing so IRS accepted the SCIN as reported. New Jersey refused to follow the federal treatment stating that it is not bound by a federal determination on any issue. If the New Jersey estate tax is predicated upon the federal estate tax law and IRS determined a particular item is correctly reported, what is the justification for a contrary and arbitrary position? No surprise, the parties will be going to court. A client of my firm has an issue pending with the taxing authorities that is controlled by the holding in the state Supreme Court’s decision in Whirlpool. Despite what we believe to be a clear application of the Whirlpool decision upholding our position, the state is holding out for money and will make the client go to court. The deficit is dictates its position.
Texas Governor Greg Abbott was a guest on Bloomberg radio and was touting the growth of the Texas economy, net positive migration and job creation. The announcer pointed out that Texas has tax revenue from oil production and Florida has sales tax revenue from tourism that allow those two states to seek less revenue from income and estate taxes. The Governor replied that Texas is committed to live within its existing means and avoid new taxes and tax increases that choke growth and prosperity. He commented that pension problems and budget deficits in other states have taken as a warning by Texas to control spending rather than raise taxes.
The departure of wealthy clients from New Jersey suggests their assessment of the current and future economic environment is negative. Simply, they believe this state is not able make the necessary changes in the face of entrenched interests so they vote with their feet. The budget and pension deficits in recent years being prime examples. Is it sound for New Jersey to continue policies that encourage residents to leave this state?
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