Thinking about taxes when planning how to leave your possessions when you pass away? That kind of thinking is called Estate Planning. Depending on who you leave your property to, inheritance taxes can make the amount that your loved ones receive less. One of the ways to reduce these taxes is to give gifts while you are still alive.
Making gifts while you are alive can reduce the taxes paid when you die. Those gifts also allow you to help family members, friends, or charities sooner.
Understanding Inheritance and Gift Taxes
Inheritance tax is a tax that may be due when someone receives money or property when another person dies. Whether tax is due will depend on the relationship between the person who died, called the testator, and the person receiving the property, called the beneficiary.
In New Jersey, when you leave assets such as money or property to a spouse, parent, child, or grandchild, there is no inheritance tax. This group of people are Class A beneficiaries. Brothers and sisters receive a $25,000 exemption. Amounts above that may be taxed at different rates. They are referred to as Class C beneficiaries. Other people, such as nieces, nephews, cousins, and friends, will pay inheritance tax starting at 15% on all that they receive. They are called Class D beneficiaries. Charities are also completely exempt. They are Class E beneficiaries.
The federal estate tax is different from NJ inheritance tax. It is based on the size of your estate instead of on who receives the property. In 2026, the federal estate and gift tax exemption grew to $15 million per person. New Jersey does not currently have a separate estate tax.
Unlike NJ Inheritance Tax, the Federal Gift Tax applies to certain gifts made while you are alive. In 2026, you are allowed to give up to $19,000 to any person without using any of your lifetime federal gift and estate tax exemption. As an example, you could give $19,000 each to 10 different people. A married couple usually can give a total of $38,000 per person each year.
If you gift someone more than $19,000, it does not mean you will automatically owe gift tax. You will have to file a federal gift tax return. The amount over $19,000 will usually be counted against your lifetime exemption.
Ways to Use Gifting
One of the easiest ways to make your estate smaller is to make gifts each year. For example, if you have three children, you could give each child $19,000 in 2026. That would remove $57,000 from your estate without using any of your lifetime exemption.
Gifts can be helpful when you plan to leave money to someone who would have to pay New Jersey inheritance tax. For example, if you leave $50,000 to a friend in your Will, the inheritance tax could be $7,500. Depending on the circumstances, giving that $50,000 to your friend while you are alive may avoid the New Jersey inheritance tax.
Paying Tuition or Medical Bills is also allowed by Federal tax law. You are allowed to pay certain tuition and medical bills without those payments being treated as taxable gifts.
Usually, you must make such payments directly to the school or medical provider. For example, you could pay a grandchild's college tuition directly to the college. These payments do not count toward the $19,000 annual gift limit. This allows you to help someone with major expenses while also reducing your estate.
Giving money or property to charity can also be part of your estate plan. You can make charitable gifts while you are alive or leave money to a charity through your Will or trust. Depending on the situation, charitable gifts may also provide tax benefits.
You are not limited to giving $19,000 per person each year. You can give more. If you give more than the annual limit, the extra amount will often count against your lifetime federal gift and estate tax exemption. You will have to file a federal gift tax return.
Larger gifts may make sense for people with large estates. They can also be useful when an asset is expected to grow. Giving the asset away now may keep some or all of its future growth out of your estate.
Gifting can be a useful estate planning tool. Taxes should not be the only concern. Before making a large gift, think about whether you may need the money later. You should also consider the type of property you are gifting and whether there could be income or capital gains tax issues.
Every estate plan is different. Your plan should fit your finances, your family, and your long-term goals. Before making gifts, consider speaking with an estate planning attorney and tax professional. With proper planning, gifting can help you support the people you care about while also reducing unnecessary taxes.