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Adult Adoption: How Formalizing your Relationship can eliminate Inheritance Tax

Did you know that in New Jersey, one adult can legally adopt another adult as their child? This unique legal provision can unlock significant inheritance tax benefits for non-traditional family structures, such as where an aunt, uncle, or family friend steps in to care for a child whose parent has passed away or abandoned them. In New Jersey, assets that pass from a parent to a child are exempt from inheritance tax; however, assets passing from an aunt to a niece get taxed at 15 to 16%. When it comes time for the aunt, uncle, or family friend to include the now-adult child in their estate plan, this inheritance tax issue can be unfair, especially when this person raised the now-adult child. Without a formal adoption, leaving assets to this adult child can trigger significant inheritance taxes unless compelling proof of a parent/child relationship exists. The Adult Adoption Statute provides a solution by legally solidifying these relationships, ensuring that your assets pass to the Adult child, not the government.

 

Let's explore how this statute works and how it can benefit you and your family.

 

Disclaimer: The information provided is intended for informational purposes only and should not be construed as legal advice.

 


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Understanding the Adult Adoption Statute

New Jersey's Adult Adoption Statute allows for the adoption of an adult so long as the Adoptor is ten or more years older than the adoptee and both consent to the adoption. Upon the judgment of adoption being granted, the parent/child relationship is now legally recognized. An additional benefit is that the parental relationship between the adult child and their biological parents is not severed, which means that they can still inherit from their biological parents in addition to the adopted parent.

 

Avoiding Inheritance Taxes

One of the key benefits of the Adult Adoption Statute is its potential to eliminate inheritance taxes. In New Jersey, inheritance taxes can be substantial, particularly for non-lineal heirs, such as siblings, nieces, and nephews. However, when an adult is adopted under this statute, they are considered a lineal descendant for inheritance tax purposes. This means they may qualify for the same tax exemptions and reduced tax rates as natural-born children.

 

Protecting Your Assets

In addition to tax benefits, the Adult Adoption Statute can also help protect your assets. By legally adopting an adult, you can ensure they are included in your estate plan and receive their rightful share of your assets. This can be crucial in blended families or situations where there may be inheritance disputes. For example, your adopted child's children will be considered your grandchildren, which means if you desire your estate to pass to them, it will also be free from inheritance taxation.

 

Ensuring Your Wishes Are Honored

By legally adopting an adult, you can designate them as your heir and ensure they receive the assets you intend for them to have. This can help prevent disputes and ensure your estate is distributed according to your wishes.

 

Conclusion

The Adult Adoption Statute in New Jersey is a significant tool for estate planning, particularly for those looking to minimize inheritance taxes and protect their assets. By understanding how this statute works and consulting with us, you can take advantage of this legal tool to ensure that the person you view as your child will be treated as your child when you pass.

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