Everyone approaches the estate planning process with their own ideas about who should receive their property once they have passed away. But no one wants the wealth they’ve accumulated over a lifetime to go to the federal or state government. In some circumstances, taxes cannot be avoided, but with advance preparation and assistance from a knowledgeable attorney, you might be able to reduce or eliminate estate and inheritance taxes.

New Jersey residents need to be aware of both types of taxes. The federal government levies a tax as high as 40 percent on estates that exceed the statutory exemption amount. For 2025, the federal estate tax exemption is $13.99 million per individual. Through proper planning, married couples can essentially double this amount to $27.98 million. Even if your estate does not approach this level, you should be cognizant of federal law in this area, because the exemption level is set to be cut roughly in half as of January 1, 2026 if Congress does not act. 

Though it no longer has an estate tax of its own, New Jersey is one of the few jurisdictions with an inheritance tax. This type of levy differs from an estate tax in several ways. For one, the inheritance tax is applied after heirs receive their bequests, and beneficiaries might be treated differently based on their relationship to the decedent. With an estate tax, the payment to the government is made before any assets are distributed. 

Under the Garden State’s estate tax, heirs are categorized as follows:

• Spouses, domestic partners, children, grandchildren, parents and grandparents are exempt from inheritance tax.

• Siblings and sons- or daughters-in-law face tax rates ranging from 11 percent to 16 percent on amounts over $25,000.

• Nieces, nephews, cousins, and unrelated individuals face a 15 percent tax on amounts up to $700,000 and 16 percent on amounts above that.

• Charitable organizations and certain public entities are also exempt.

For New Jersey residents with large estates, strategies like lifetime gifting, irrevocable trusts and charitable donations can help reduce estate tax liability. If you’d like to leave something to individuals who would be subject to inheritance tax, you might want to consider alternative ways of transferring assets to them. Since the law changes frequently, periodic reviews of estate plans are essential to avoid unnecessary tax exposure.

Hollander, Strelzik, Pasculli, Vandenberg, Hontz & Associates, LLC, provides comprehensive estate planning counsel for New Jersey clients. Please call 973-737-1023 or email us at [email protected] for an appointment. Our offices are in Newton and Succasunna.