Important New Jersey Tax Law Changes

Important New Jersey Tax Law Changes
From the March 2004 <I>Riker Danzig Tax and Trusts and Estates UPDATE</i>.

Inheritances Payable to Minors May Now Be Transferred to Court-Approved Trusts

An important new state law allows for the creation of trusts to hold inherited funds for minor children beyond the age of 18 (prior law required that funds inherited by a minor, except when a trust is specifically created for the minor under a will, had to be distributed to the minor at age 18).

Under the new law, upon petition to the court, the funds may be held in trust for the benefit of minor child, to be used at any time for the health, education and support of that child. The child would also be entitled to receive periodic distributions of the principal (for example, one-third of the principal at age 25, one-half at age 30, and the remainder at age 35, or whatever ages the court may order).

When the new law was first introduced, it applied only to families of victims of the September 11, 2001, terrorist attacks, but it was later amended to apply to the families of anyone who dies without a will. (The new law does contain a special provision that allows a trust to be created to hold funds from the September 11th Victim Compensation Fund of 2001 for the benefit a minor child, regardless of whether the parent died with or without a will.)

The law is retroactive in effect and, therefore, should be applicable to funds already being held by a Surrogate Court for the benefit of a minor child. It should now be possible to petition a court to transfer those funds to a trust for the minor.

New Jersey Corporation Must Be Formally Dissolved with the State in Order to Avoid Ongoing Corporate Taxes

The New Jersey Division of Taxation (the "Division") recently issued a notice reminding taxpayers that a New Jersey corporation is subject to the Corporation Business Tax from its incorporation and "until it legally dissolves through the New Jersey Secretary of State." This means that, until the corporation is legally dissolved, it must annually file and pay at least the minimum tax (currently $500).

If a corporation is not formally dissolved, and it fails to file and pay the taxes owed, the Division will forward the case to the Special Procedures Branch, Judgment Section, for further action. If the Division refers the matter to an outside collection agency, an additional 10% penalty will be imposed in addition to any late payment penalty, late filing penalty, monthly late filing penalty, amnesty penalty and interest.

If the tax at issue is a trust fund tax (e.g., sales tax), the officers and directors of the corporation may be personally liable. In addition, if the officers and directors allowed any assets to be distributed in dissolution or liquidation to the stockholders without having first paid all the corporation's expenses (e.g., franchise taxes, fees, penalties and interest) they may be personally liable for the unpaid taxes, fees, penalties and interest and/or the shareholders who received assets in liquidation might be responsible for these unpaid taxes, fees, penalties and interest. If you have a corporation that was not formally dissolved (by filing a Certificate of Dissolution, Estimated Summary Tax Return and Request for Tax Clearance Certificate with the Division of Revenue), please contact your attorney at your earliest convenience to avoid further accruals of taxes and potential personal liability for officers and directors.

New Jersey Domestic Partnership Act Provides Significant Income and Inheritance Tax Benefits to Unmarried Couples

The New Jersey Domestic Partnership Act (effective July 10, 2004) allows for legally recognized "domestic partnerships" between same sex individuals and opposite sex individuals over the age of 62. In order for a domestic partnership to be recognized, the couple must file an Affidavit of Domestic Partnership. The procedure for filing this affidavit has not yet been finalized.

Once the parties have filed an Affidavit of Domestic Partnership, the Act permits a taxpayer to claim an additional personal exemption for a domestic partner if that partner does not file a separate return. In addition, the Act treats a surviving domestic partner in the same manner as a surviving spouse is treated for transfer inheritance tax purposes. Thus, all transfers made by will, survivorship or contract to a surviving domestic partner are exempt from New Jersey inheritance tax. This change will have a very positive effect on estate planning in New Jersey for unmarried couples who file an Affidavit of Domestic Partnership. You should contact your attorney if you are interested in these special tax benefits under this new law.