Last weekend, while having a barbecue with some friends in the neighborhood, the topic of inheritance tax suddenly came up. One person asked, "I heard there's no tax up to $15 million now, is that true?" Everyone just tilted their heads in confusion.

I wasn't sure either, so I went home and looked it up. To cut to the chase, under federal guidelines, most Korean families have little to worry about. However, there is something specific to keep in mind for New Jersey.

First, let's look at the numbers. The One Big Beautiful Bill Act (OBBBA), signed in July 2025, raised the federal estate tax exemption to $15 million per person starting in 2026.

The IRS also confirmed the exemption amount for 2026 as $15 million in Rev. Proc. 2025-32. The exemption amount for 2025 was $13.99 million, so this is quite a significant increase.

If you're a couple, the situation gets even better. If you choose portability, which allows you to inherit the remaining exemption of the deceased spouse, you can have a combined exemption of $30 million.

The reason the term "permanent" came up is that the increased exemption amount from the 2017 Tax Cuts and Jobs Act (TCJA) was originally set to expire at the end of 2025 and revert to about half of the current amount starting in 2026.

However, the OBBBA eliminated this sunset provision, and starting in 2027, the exemption amount will be adjusted annually for inflation. That's why everyone refers to it as permanent.

That said, to be honest, the term "permanent" is a bit of an exaggeration. It simply means there is no expiration date, but Congress could change the law again in the future.

The highest tax rate on amounts exceeding the exemption remains at 40%. While that sounds intimidating, you need to have a net worth exceeding $15 million for it to apply.

So, what about our household? It's likely that very few families have assets exceeding $15 million when you add up the value of a house, retirement accounts, life insurance, and savings.

Therefore, federal estate tax is more of a concern for others than for most families. The friend who was worried at the barbecue visibly relaxed upon hearing this.

But the real point comes now. New Jersey abolished its state-level estate tax for deaths occurring after January 1, 2018, but the inheritance tax imposed on the beneficiaries remains in place.

This tax is determined not by the size of the estate but by who receives it. Spouses, children, grandchildren, parents, and grandparents are classified as Class A and are fully exempt regardless of the amount.

The problem lies with others. Siblings, daughters-in-law, and sons-in-law fall under Class C, where only the first $25,000 is exempt, and anything above that is taxed starting at 11% and going up to a maximum of 16%.

Nephews, friends, and unmarried partners fall into Class D. In this case, there is a 15% tax on amounts up to $700,000, and 16% on amounts exceeding that.

For example, let's say someone without children leaves their cherished home to a nephew. This means that regardless of the federal exemption of $15 million, a 15% tax could apply in New Jersey.

This was the most surprising part. People might feel reassured by federal news, only to be caught off guard by state taxes.

Another point is that many residents of New Jersey own condos or commercial properties in New York. New York has its own estate tax, and the exemption amount for 2026 is set at $7.35 million, which is significantly lower than the federal exemption.

New York does not recognize portability and has what's known as the cliff rule. If the taxable estate exceeds 105% of the exemption amount, which is $7,717,500, the entire exemption disappears, and taxes apply to the whole estate.

However, the conditions for how New Jersey residents' New York properties are calculated can be quite complex. If this applies to you, be sure to check separately.

So, what should you do now? First, the annual gift tax exemption for 2026 remains at $19,000 per recipient, the same as in 2025.

If a couple gives together, they can gift up to $38,000 to one person without reporting it. This can be a useful way to help with children's education or a down payment on their first home.

The second step is to consider portability after the death of a spouse. Even if the estate appears small, you may need to file an estate tax return (Form 706) to claim the remaining exemption.

The third step is to review your beneficiary designations. Many people still have the same beneficiaries for their retirement accounts or life insurance that they set years ago.

Especially if you designated a sibling or nephew instead of a child, you could be subject to New Jersey inheritance tax. I recommend pulling out your documents to check.

Of course, tax issues can vary greatly depending on the composition of your estate, family relationships, and length of residency. Since it varies by individual circumstances, be sure to consult a tax professional or estate attorney before making any decisions.

In summary, federal estate tax does not apply to most families, and in New Jersey, there are no taxes when passing on to children or spouses.

However, if you plan to leave assets to siblings, nephews, or friends, or if you own property in New York, the situation changes completely.

If it were me, I would first organize my beneficiary designations before making any big plans. It's not a costly task, and it can surprisingly lighten your mind.