Estate & Gift Tax:
What You Actually Need to Know
When people hear the words "death tax," they often tune out — or panic. The truth is more nuanced and, for most families, more manageable than you might think. At Yardley Estate Planning, we help you understand exactly where you stand under federal, Pennsylvania, and New Jersey tax law — and how to plan wisely so more goes to the people you love.
Important 2026 Update: The elevated federal estate tax exemption — currently $13.99 million per person — was created by the Tax Cuts and Jobs Act of 2017 and was scheduled to sunset on December 31, 2025, potentially dropping the exemption to approximately $7 million per person (indexed for inflation). Congress passed legislation in 2025 extending and making permanent the higher exemption amount. We stay current on these changes so you don't have to — and we'll make sure your plan reflects the law as it actually stands when you work with us.
How the Federal Estate & Gift Tax Works
The federal government taxes the transfer of wealth — both during your lifetime (gift tax) and at death (estate tax). These two taxes are unified, meaning they share a single lifetime exemption. Here's how it works in plain English:
Every person has a lifetime exemption — currently $13.99 million per individual (2025 figure, adjusted annually for inflation). Any taxable gifts you make during your lifetime reduce that exemption dollar for dollar. Whatever exemption remains at your death shelters your estate from federal estate tax.
Amounts above the exemption are taxed at rates up to 40%. For married couples, the unused exemption of the first spouse to die can be transferred to the surviving spouse — a feature called "portability" — potentially sheltering up to $27.98 million from federal estate tax combined.
Separately, the annual gift tax exclusion lets you give up to $19,000 per recipient per year (2025) without touching your lifetime exemption at all. For a married couple, that's $38,000 per recipient per year — a powerful tool for transferring wealth to the next generation over time.
What Does Your Taxable Estate Include?
Your gross estate for federal tax purposes is broader than most people expect. It includes virtually everything you own or control at the time of your death:
🏠 Real estate — your home, vacation property, investment real estate, and any fractional interests
💼 Financial accounts — bank accounts, brokerage accounts, and retirement accounts (IRAs, 401(k)s)
🏢 Business interests — sole proprietorships, partnership interests, LLC interests, closely held stock
🔄 Life insurance — policies you own are included in your taxable estate (even though proceeds pass income-tax-free to beneficiaries)
🤝 Jointly held property — your fractional share of jointly owned assets
📋 Certain trusts and transferred assets — assets in revocable trusts and some irrevocable structures remain in your estate
The estate — not your heirs — is responsible for paying any federal estate tax owed. The return is due within nine months of death, though a six-month extension is available.
Understanding the Federal Estate Tax
Numbers and exemptions can be confusing — hearing it explained makes it much clearer. Watch Michael J. Garry walk through the basics of the federal estate tax, who it applies to, and why planning now matters even if you're not currently affected.
Learn the Basics of the Federal Estate Tax
Who it applies to, and why planning ahead matters. Even if you're not currently affected, your assets could grow — or laws could change. Discover how smart estate planning can help protect your wealth and ensure more goes to your loved ones, not the IRS.
Estate Tax Planning Strategies
A deeper look at how thoughtful planning can reduce your estate's tax exposure — and why the right strategies depend on your specific family situation, asset mix, and long-term goals.
Pennsylvania & New Jersey Inheritance Tax
Here's something many families don't realize: even if your estate is well below the federal exemption, you may still owe state-level inheritance tax. Pennsylvania and New Jersey both impose inheritance taxes — and the rates depend entirely on your relationship to the person who receives the assets.
Pennsylvania Inheritance Tax
Pennsylvania does not have a state estate tax, but it does impose an Inheritance Tax on assets passed to heirs. The tax is calculated based on the relationship between the deceased and the recipient:
| Recipient | Tax Rate |
|---|---|
| Surviving spouse | 0% |
| Children, grandchildren, stepchildren, parents | 4.5% |
| Siblings | 12% |
| All other heirs | 15% |
Note: Transfers to charitable organizations are exempt. A 5% discount applies if the tax is paid within 3 months of death. Life insurance paid to named beneficiaries is generally exempt from PA Inheritance Tax.
New Jersey Inheritance Tax
New Jersey eliminated its state estate tax as of January 1, 2018. However, New Jersey's Inheritance Tax remains in effect. The rate depends on the relationship to the deceased:
| Recipient | Tax Rate |
|---|---|
| Spouse, civil union partner, domestic partner, children, grandchildren, parents | Exempt |
| Siblings, sons/daughters-in-law | 11%–16% |
| Other beneficiaries (non-exempt) | 15%–16% |
Note: Charitable transfers are generally exempt. Life insurance payable to named beneficiaries is exempt from NJ Inheritance Tax. Transfers to Class A beneficiaries (immediate family) are fully exempt.
Not sure what your heirs would owe in Pennsylvania or New Jersey? We run through the numbers with every client — it's often more manageable than people fear, and always worth knowing.
Let's TalkWays to Reduce the Tax Burden on Your Estate
The good news: there are well-established, legal strategies to reduce — or in some cases eliminate — estate and inheritance tax exposure. The key is acting before you need to. Once assets are transferred and circumstances change, your options narrow significantly.
Annual Gift Tax Exclusion
Give up to $19,000 per recipient per year (2025) — or $38,000 per recipient for married couples — completely free of gift tax and without touching your lifetime exemption. Over time, this systematically reduces your taxable estate.
Low complexityUnlimited Marital Deduction
Transfers between US citizen spouses are completely free of federal estate and gift tax — no limit. Combined with portability, married couples can shelter nearly $28 million from federal estate tax with proper planning.
Essential for couplesIrrevocable Life Insurance Trust (ILIT)
Life insurance owned by you is included in your taxable estate. An ILIT owns the policy instead, keeping the death benefit out of your estate while still providing liquidity for heirs or to pay estate taxes.
Reduces estate sizeCharitable Giving Strategies
Charitable bequests, Charitable Remainder Trusts (CRTs), and Donor-Advised Funds (DAFs) can fulfill your philanthropic goals while reducing your taxable estate — often providing income and tax benefits during your lifetime too.
Dual benefitFamily Limited Partnership / LLC
Business owners and families with significant assets can use FLPs or LLCs to transfer interests to heirs at discounted valuations — reducing the taxable value of your estate while maintaining some control during your lifetime.
For larger estatesGrantor Retained Annuity Trust (GRAT)
A GRAT lets you transfer appreciating assets to heirs with little or no gift tax — if the assets grow faster than the IRS hurdle rate, the excess passes to beneficiaries tax-free. Particularly effective in low-interest-rate environments.
Growth-focusedLet's Clear a Few Things Up
Estate taxes generate more confusion than almost any other planning topic. Here are the questions and misconceptions we hear most often from clients in Yardley, Newtown, and across Bucks County.
"My estate isn't big enough to worry about taxes."
Federal estate tax affects only estates above $13.99 million — so for most families, that's true. But Pennsylvania's Inheritance Tax starts from dollar one and applies to everyone, regardless of estate size. A $400,000 home left to a sibling triggers a $48,000 tax bill. That affects a lot of families.
State inheritance taxes apply to most Pennsylvania and New Jersey estates — regardless of size.
Even if you'll never owe a penny in federal estate tax, understanding Pennsylvania's and New Jersey's inheritance tax rates — and structuring your plan accordingly — can save your heirs thousands of dollars.
"My spouse will inherit everything tax-free, so we don't need to plan."
Transfers to a surviving US citizen spouse are indeed tax-free — at the federal level and under PA and NJ law. But what happens when the surviving spouse dies? Without planning, the full estate may be exposed to estate and inheritance tax on the second death.
The real tax planning happens at the second death — and that's exactly when most families are least prepared.
A well-structured plan accounts for both deaths. For larger estates, tools like bypass trusts and portability elections ensure the surviving spouse's estate is protected too.
"Estate tax planning is only for the ultra-wealthy."
This was more true 20 years ago when exemptions were much lower. Today, federal estate tax affects fewer than 1% of estates. But state inheritance taxes, income taxes on inherited retirement accounts, and capital gains planning affect a much wider range of families.
Tax-efficient estate planning benefits families at all wealth levels — the strategies just look different.
For most families, the focus is on minimizing state inheritance tax, coordinating beneficiary designations, and understanding the income tax implications of inherited IRAs and retirement accounts — not federal estate tax.
Want to know exactly where your estate stands? We walk through the numbers with every client — federal, Pennsylvania, and New Jersey — so you know what your family would actually face.
Let's TalkSmart Planning Now Means More for the People You Love
Tax laws change. Exemptions shift. Families grow. The best time to review your estate plan with an eye toward tax efficiency is before something forces you to. We help families throughout Yardley, Newtown, and Bucks County understand their exposure and put a clear, practical plan in place — without the jargon and without the overwhelm.