A New Jersey man recently became liable for approximately $70 million in state and federal taxes. You probably don’t feel so bad when you realize it was the most recent Powerball winner. He took the cash option and reports state that he will net $152 million of the $221 million payout. He may not have thought about estate planning previously, but this is the time to begin.
If he remains a New Jersey resident, the value of his estate over $675,000 will be subject to New Jersey estate taxes with a progressive rate that tops out at 16 % for any estate over $ 10,040,000. Federal estate taxes of 40% will be assessed on the value of the estate over $5,250,000. If he owns property in New York State, New York State taxes apply on estates over $1 million.
The man’s stated goal is to take care of his family. One option would be to establish a family limited partnership. As general partner, he will control the assets in the partnership while transferring assets to the limited partners, other family members. The limited partners have no say in how the partnership is operated but will share in any dispersal relative to their stake in the partnership.
An estate planning attorney should be consulted when you create a family limited partnership. There are strict guidelines to the operation of the partnership because it is a family business. However, once the partnership is established, it provides liability protection for the limited partners and can protect the assets from state and federal estate taxes. Upon consultation, you can determine if this is the best course for you.