Many clients ask me whether they or their beneficiaries will owe taxes when they pass. The answer depends mostly on the size of your estate and who you are leaving your assets to.
The bottom line up front: The federal estate tax is unlikely to apply, and New Jersey has no estate tax. However, New Jersey does impose inheritance taxes on certain beneficiaries.
Just like when you file your income taxes, there are two broad areas to consider – federal taxes and New Jersey taxes.
Federal Estate Tax
The good news for most people is that the federal estate tax will not apply to you or your estate.
As of 2026, the federal estate tax exemption is $15,000,000 per person. Married couples may combine the exemption using proper planning techniques, for a total of $30,000,000 per couple. As you can see, for most New Jersey residents, this is not a concern.
This exemption is combined for the estate tax and gifts made during a person’s lifetime. The federal gift tax, though not the subject of this article, is also often misunderstood. If you make a gift to someone under the annual gift exclusion ($19,000 as of 2026), no gift tax reporting is due. If you make a gift over that amount, you are required to report it using IRS Form 709, a Gift Tax Return. What most people misunderstand is that no tax is immediately due just because you made a gift over the annual exclusion amount – instead, the amount of that gift reduces your remaining estate and gift tax exemption. Say you make a gift of $100,000 and file Form 709. When you die, your estate tax exemption will be reduced by that $100,000.
If your estate approaches or exceeds the current federal estate tax exemption amount, specialized estate planning techniques are available to reduce the tax burden. If this applies to you, please contact our office to explore your options.
New Jersey Taxes
New Jersey taxes are much more likely to apply to your situation, and in this section we will explore when they do and do not apply.
NJ Estate Tax
Before 2018, New Jersey imposed an estate tax which was paid by the estate itself, based on the total value of assets in the estate. New Jersey repealed the state estate tax for deaths on or after January 1, 2018 (N.J.S.A. 54:38-1 et seq., as amended).
There is currently no estate tax levied by the State of New Jersey – great news for New Jersey residents!
NJ Inheritance Tax
New Jersey does, however, impose an inheritance tax. Unlike the estate tax, which was paid by the estate, the inheritance tax is paid by the beneficiary, based on their relationship to the decedent.
The key is the relationship between the beneficiary and the decedent. State law categorizes beneficiaries in the following “classes,” and different tax rates apply to each:
| Beneficiary class | Who it applies to | Tax rate |
|---|---|---|
| Class A | Spouse, civil union partner, children, stepchildren, grandchildren, parents, and grandparents (also includes great-grandchildren, etc.) | 0% – no tax due |
| Class C | Siblings and sons- or daughters-in-law | 11-16%, after a $25,000 exemption |
| Class D | Everyone else – nieces, nephews, friends, unmarried partners | 15-16%, after a $500 exemption |
| Class E | Charities, religious institutions, medical or educational institutions, | Exempt (0%) |
As you can see from the table, spouses, civil union partners, and anyone directly up or down the family tree (parents, grandparents, children, grandchildren, etc.) has no inheritance tax liability.
Clients are often somewhat surprised by the inheritance tax due on gifts to siblings, which kicks in at a rate of 11% on gifts over $25,000 and climbs to 16%.
Clients are also often very unpleasantly surprised by the tax rate for Class D beneficiaries, which includes friends and unmarried partners. Only a minimal $500 exemption applies, and all gifts above that amount are subject to a 15% tax on the first $700,000, and 16% on all amounts over $700,000.
Which assets are subject to the inheritance tax?
Nearly all assets a decedent owns are subject to the inheritance tax. This includes money in joint accounts and includes real estate. A few things are exempt from the inheritance tax:
- The first $500 to any beneficiary, regardless of class.
- Life insurance proceeds paid to a named beneficiary.
- Payments from the New Jersey Public Employees Retirement System (PERS), New Jersey Teachers’ Pension and Annuity Fund (TPAF) and the New Jersey Police and Firemen’s Retirement System (PFRS).
- Federal Civil Service Retirement benefits payable to a beneficiary other than the estate or the executor or administrator of a decedent’s estate
- Annuities payable by the US Government pursuant to a Retired Serviceman’s Family Protection Plan or the Survivor Benefit Plan to a beneficiary other than the estate or the executor or administrator of a decedent
How is the tax paid?
For bank accounts going to Class A beneficiaries or in other circumstances where there is no inheritance tax due, the executor or administrator of the estate should complete a Form L-8 Self-Executing Waiver Affidavit. This form is then provided directly to the bank holding the funds.
For real estate, even Class A beneficiaries (where no tax is due) will require an O-1 waiver from the NJ Division of Taxation before real estate can be transferred. This is accomplished by filing a Form L-9 with the Division, who will then issue the O-1 waiver.
For situations where inheritance tax is owed, an IT-R Inheritance Tax Return must be filed with the Division of Taxation. This can be a complex process, and it is highly advisable to consult an experienced attorney and/or tax professional for assistance.
Conclusion
Estate and inheritance taxes are a common point of confusion and concern. For most taxpayers, the federal estate tax does not apply because of its high exemption amounts. For deaths in 2018 or later in New Jersey, there is no state estate tax. However, you should be aware of New Jersey’s inheritance tax, which may apply depending on the size of the gift and who the gifts goes to.