As the old saying goes, you can’t avoid death or taxes — and in some cases, taxes can still follow after death. One of the most significant examples is the federal estate tax, which may apply to property you own, or are deemed to own, at the time of your passing. For New Jersey families with growing wealth, understanding how estate taxes work is an important step in protecting what you’ve built and ensuring your legacy is passed on according to your wishes.
The federal estate tax generally applies when the value of your estate, combined with certain lifetime gifts, exceeds the federal exemption amount. For 2025, that exemption is $13.99 million per individual, increasing to $15 million in 2026. Amounts above those thresholds may be taxed at rates of up to 40%. While these limits sound high, many families are surprised by how quickly real estate, investment portfolios, retirement assets, and life insurance proceeds can add up.
Estate tax planning matters because this tax is often one of the largest expenses an estate may face. Without proper planning, a substantial portion of your wealth could go to the federal government rather than to your spouse, children, or charitable causes you care about.
In addition to the federal estate tax, some states impose their own estate or inheritance taxes. While New Jersey no longer has an estate tax, it does still impose an inheritance tax on certain beneficiaries (Class C or D beneficiaries). Proper coordination between federal and state rules is essential to avoid unnecessary taxation and administrative headaches.So how is the federal estate tax calculated? The process begins by determining your “gross estate,” which includes nearly everything you own at death — real estate, bank accounts, investment assets, business interests, personal property, and even certain assets that pass directly to beneficiaries, such as jointly owned property or life insurance proceeds.
From there, allowable deductions are subtracted to arrive at your taxable estate. Common deductions include funeral and administrative expenses, outstanding debts, charitable bequests, and the unlimited marital deduction for assets left to a surviving spouse who is a U.S. citizen. These deductions can significantly reduce, or even eliminate, estate tax exposure when used thoughtfully.
After deductions are applied, certain lifetime taxable gifts made after 1976 are added back to calculate your total taxable transfers. This prevents individuals from avoiding estate taxes simply by giving assets away shortly before death. A tentative tax is then calculated using a graduated rate schedule, similar to income taxes.
Finally, available credits — most notably the unified credit tied to the federal exemption amount — are applied to determine whether any estate tax is actually owed. For married couples, portability rules may allow a surviving spouse to use any unused exemption from the first spouse to pass away, effectively doubling the amount that can be transferred tax-free to $30 million in 2026.
If no taxable gifts were made during life, a simplified estimate can be used: subtract the exemption amount from the taxable estate and apply the 40% top rate to the excess. While this shortcut can provide a rough estimate, more precise planning often reveals opportunities to reduce or eliminate taxes altogether.
The key takeaway is this: estate taxes are complex, but they are also highly manageable with proactive planning. Working with experienced advisors allows families to explore strategies such as lifetime gifting, trust planning, charitable giving, and business succession planning — all designed to preserve wealth and provide peace of mind.
A well-crafted estate plan doesn’t just minimize taxes. It ensures clarity, reduces stress for loved ones, and helps your legacy reflect your values. That peace of mind is something every family deserves.
CRA Investment Committee
Matt Reynolds CPA, CFP®
Tom Reynolds, CPA
Robert T. Martin, CFA, CFP®
Gordon Shearer Jr., CFP®
Jeff Hilliard, CFP®, CRPC®
Joseph McCaffrey, CFP®
Phill Tompkins, CFP®
(This article is for informational and educational purposes only and should not be relied upon as the basis for an investment decision. Consult your financial adviser, as well as your tax and/or legal advisers, regarding your personal circumstances before making investment decisions.)
