The $15 Million Estate Tax Exemption: Why NJ Families Should Plan Before It Drops

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Executive Summary for the Taxpayer: For 2026, the federal basic exclusion amount for estate and gift tax is $15 million per individual, or approximately $30 million for a married couple before considering prior gifts and portability. Although the One Big Beautiful Bill Act removed the scheduled post-2025 reduction, New Jersey families with appreciating businesses, real estate, and investment assets should still plan before growth, documentation problems, or future legislation changes the result.

The 2026 federal exemption is larger, but planning is not automatic

The federal estate and gift tax exemption is $15,000,000 per individual for 2026, and the generation-skipping transfer tax exemption is also $15,000,000 per individual. The federal estate, gift, and GST tax rate can reach 40% on transfers above the applicable exemption. IRC §§ 2001, 2010, 2631; IRS, What’s New: Estate and Gift Tax

The One Big Beautiful Bill Act, enacted as Public Law 119-21, made the higher exemption permanent under current law and increased the 2026 amount to $15 million, indexed for inflation in later years. Therefore, there is no scheduled “sunset” that automatically reduces the exemption after 2025, although Congress could change the law in the future. Congressional Research Service, Congress.gov

A married couple may be able to preserve up to approximately $30 million of combined federal exclusion through coordinated planning and the deceased spousal unused exclusion, commonly called portability. Portability requires a timely filed Form 706 for the first spouse’s estate, even when no federal estate tax is otherwise due. IRC § 2010(c)(4); IRS Publication 559

The exemption applies to the combined effect of certain lifetime taxable gifts and transfers at death. A family that has already made substantial gifts must calculate its remaining applicable exclusion rather than assuming the full $15 million remains available. IRC §§ 2001(b), 2010; IRS Publication 559

The annual gift tax exclusion is $19,000 per recipient in 2026. A married couple may generally treat gifts of up to $38,000 per recipient as split gifts, but both spouses generally must file Form 709 to elect gift-splitting. IRC § 2503(b); IRS, What’s New: Estate and Gift Tax

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Why New Jersey families still need state-level analysis

New Jersey eliminated its estate tax for residents who die on or after January 1, 2018. That means New Jersey does not impose its former estate tax merely because the gross estate exceeds a particular value. New Jersey Division of Taxation, Inheritance and Estate Tax; New Jersey Estate Tax Rates

New Jersey still imposes a transfer inheritance tax based primarily on the relationship between the decedent and beneficiary, the property transferred, the decedent’s residence, and other facts. Class A beneficiaries, including a spouse, child, parent, grandchild, and certain other lineal family members, are exempt from New Jersey inheritance tax. New Jersey Beneficiary Classes

Transfers to certain non-Class A beneficiaries can be taxable. Depending on the relationship, this can include transfers to siblings, nieces or nephews, more distant relatives, and unrelated individuals; the applicable class, exemption, and rate must be confirmed from the current New Jersey rules rather than assumed from the federal exemption. New Jersey Division of Taxation, Inheritance Tax Rates

This distinction matters for New Jersey families using trusts, beneficiary designations, or business succession arrangements. A transfer can be protected from federal estate tax while still requiring New Jersey inheritance-tax analysis if the beneficiary is not in an exempt class. New Jersey Division of Taxation, Inheritance and Estate Tax

Advanced strategies worth evaluating in 2026

A $15 million exemption does not mean every family should give away $15 million. The correct strategy depends on liquidity, asset appreciation, control, creditor concerns, family governance, charitable goals, income-tax basis, and the client’s willingness to transfer assets during life.

Potential strategies include:

  • Grantor Retained Annuity Trusts: A GRAT generally transfers future appreciation above the applicable valuation hurdle to remainder beneficiaries while the grantor retains an annuity interest for a defined term. The IRS uses the monthly Section 7520 rate to value annuity and remainder interests, and the transaction must be modeled using the applicable rate for the funding month. IRC §§ 2702, 7520; IRS Section 7520 Interest Rates

  • Dynasty trusts: A properly structured dynasty trust may hold assets for multiple generations, subject to the governing state law, trust terms, and proper allocation of GST exemption. The GST exemption is numerically equal to the basic exclusion amount, but it is not portable between spouses in the same manner as the federal estate-tax exclusion. IRC §§ 2631, 2642; IRS Publication 559

  • Leveraged sales to grantor trusts: A sale of appreciating assets to a grantor trust may be structured in exchange for an installment note bearing at least the applicable federal rate for the note’s term. AFRs are different from the Section 7520 rate used for GRAT valuation, and the transaction requires valuation support, adequate documentation, and careful administration. IRC §§ 1274, 7872; IRS Applicable Federal Rates

  • Business and real estate transfers: Closely held business interests, rental properties, and investment entities may require independent appraisals, updated operating agreements, transfer restrictions, and a defensible explanation of the reported value. The tax result cannot be separated from the legal documents and actual conduct of the parties.

Dark-mode monitor showing an asset-value line crossing a valuation benchmark beside a brass fountain pen and tax code volume

The income-tax tradeoff: estate exclusion versus basis step-up

Estate planning is not only about avoiding transfer tax. Property acquired from a decedent generally receives a basis equal to its fair market value at death, subject to the statutory rules and exceptions. This basis adjustment can reduce capital gain if the beneficiary later sells the property. IRC § 1014; IRS Publication 559, Basis of Inherited Property

A trust strategy that successfully removes future appreciation from the taxable estate may also leave that appreciation outside the normal basis adjustment rules. In general, assets sold to a grantor trust and excluded from the grantor’s gross estate should not be assumed to receive a federal basis step-up merely because the trust is treated as a grantor trust for income-tax purposes. IRC § 1014; IRS Publication 559

That creates a planning choice:

  • Retain or include selected low-basis assets in the estate to pursue a basis adjustment, while using available exclusion.
  • Transfer high-growth assets outside the estate to pursue estate and GST tax efficiency, while accepting potential carryover basis.
  • Use different strategies for different asset classes rather than applying one technique to the entire balance sheet.

The right answer depends on expected appreciation, the family’s likely capital-gain exposure, liquidity needs, charitable objectives, and whether the estate is expected to exceed the federal exclusion. A transfer-tax strategy that ignores basis can create an unnecessary income-tax cost for beneficiaries.

Why documentation matters under the IRS Global High Wealth program

The IRS’s current Internal Revenue Manual describes the Global High Wealth program as a coordinated examination approach for high-wealth individuals and the enterprises they control. An enterprise case may include the individual’s Form 1040, partnerships, trusts, S corporations, C corporations, gift-tax returns, and estate-tax returns. IRM 4.52.1.1.1

This does not mean that every New Jersey family using a trust will be audited. It does mean that complex arrangements should be documented as an integrated system, with consistent information across income-tax returns, appraisals, trust accounting, ownership records, and Forms 709 and 706.

Maintain a central file containing:

  • Signed trust instruments and amendments.
  • Transfer documents, purchase agreements, and promissory notes.
  • Independent appraisals and valuation assumptions.
  • AFR calculations and payment records for installment notes.
  • Gift histories and copies of filed Forms 709.
  • GST allocation records and trust accounting.
  • Entity ownership charts and operating agreements.
  • Records supporting basis, debt, cash flow, and distributions.

The IRS has examination authority over books, records, and witnesses, and the GHW procedures specifically address related-entity returns and information-document-request responses. A clean record will not eliminate legal uncertainty, but it can prevent avoidable inconsistencies and unsupported positions. IRC § 7602; IRM 4.52.1

Organized digital asset map connecting a family business, real estate, trust, and estate return on a dark navy monitor

A practical 2026 planning sequence

For advanced New Jersey tax planning, use a documented process:

  1. Calculate the balance sheet. Include real estate, closely held businesses, investment accounts, retirement assets, life insurance, private equity, carried interests, digital assets, and expected future inheritances.

  2. Separate ownership from control. Identify individually owned assets, jointly owned assets, revocable trusts, irrevocable trusts, entities, and beneficiary-designated accounts.

  3. Model federal and New Jersey exposure. Calculate prior taxable gifts, remaining federal exclusion, GST exemption, potential New Jersey inheritance tax, and the income-tax basis of each major asset. IRC §§ 2001, 2010, 2631; New Jersey Division of Taxation

  4. Evaluate the basis tradeoff. Decide which assets may be appropriate for lifetime transfer and which may be better retained for potential basis adjustment at death. IRC § 1014

  5. Review filing history. Confirm that prior Forms 709, portability elections, appraisals, trust returns, and entity returns are complete and consistent.

  6. Coordinate the professional team. Estate counsel should draft and administer legal instruments; valuation professionals should support difficult assets; and a tax professional should model, report, and reconcile the tax consequences.

The 2026 exemption is an opportunity, not a substitute for analysis. Families with significant New Jersey real estate, business interests, or investment assets should review the plan before appreciation, a sale, a death, or an IRS inquiry makes the decision urgent.

Brick Taxes LLC provides federal tax planning and Enrolled Agent representation. To discuss a tax matter, visit www.bricktaxes.com, call 732-540-1040, or schedule a consultation at calendly.com/bricktaxes/resolve.

This article is general educational information and is not legal advice or a recommendation to implement a GRAT, dynasty trust, grantor-trust sale, or other transfer strategy without individualized advice.

Official Authorities Referenced