What is the Difference Between a Resident and Nonresident Estate?
In the estate planning context in New Jersey, you will come across references to a “resident estate” and “nonresident estate,.” You may also see these terms applied to trusts, referencing a “resident trust” or “nonresident trust” in New Jersey. What is the difference between a resident and nonresident trust, and why does it matter for purposes of estate planning? In short, resident versus nonresident estates and trusts concern taxation. Our New Jersey estate planning lawyers can provide you with more information about how residency status may affect the taxation of an estate or a trust. If you have further questions, or if you need assistance with any aspect of estate planning, do not hesitate to get in touch with Dempsey, Dempsey & Sheehan.
Defining a Nonresident Estate or Trust
Under New Jersey law, a nonresident estate or trust “means an estate or trust that is not a resident.” The most important thing to know about a nonresident estate or trust is that they are not taxed by New Jersey. Generally speaking, only resident trusts and estates will be subject to income taxation in New Jersey.
In order to have a clear understanding of what it means to be an estate or trust that is not a resident of New Jersey, it is essential to understand the opposite — a resident estate or trust.
Defining a Resident Estate or Trust
In New Jersey, a resident estate is defined as “the estate of a decedent who was domiciled in New Jersey at the time of death.” Domicile is generally understood to mean “the place and state you consider your permanent home.” Accordingly, a resident estate is one owned by a person who considered New Jersey their permanent home at the time of their death, regardless of whether they had previously lived elsewhere or created a will in another state.
A resident trust is one for which one of the following is true:
- Trust was created through the will of a New Jersey resident (a testamentary trust) whose estate is considered a resident estate;
- Trust was created as a revocable trust that became an irrevocable trust at the time the grantor (the party who created the trust) was a New Jersey resident; or
- Trust was created as an irrevocable trust by a New Jersey resident and funded by a New Jersey resident.
While a resident trust may be subject to income tax in New Jersey, it is important to know that not all resident trusts are necessarily going to be subject to New Jersey income tax. A resident trust may be considered “exempt” if it meets certain requirements. A lawyer can explain in more detail if you have questions about establishing a trust or you need to find out more about a trust for which you are a beneficiary.
Contact a Summit, New Jersey Estate Planning Attorney
Whether you are getting started on your own estate plan or you have questions about the estate plan of a parent or another loved one concerning residency status, one of the experienced Summit estate planning attorneys at Dempsey, Dempsey & Sheehan can speak with you today. Contact us for more information.
Source:
nj.gov/treasury/taxation/pdf/pubs/tgi-ee/git12.pdf
