What Is an Inheritance Tax?

Heirs and beneficiaries who receive property from a deceased person’s estate sometimes have to pay an inheritance tax. The federal government doesn’t have an inheritance tax, but six states do. The tax is typically a percentage of the value of what they receive based on their degree of kinship to the deceased.

Tax rates are typically graduated, with spouses being exempt and more distant relatives and non-relatives paying the highest percentage. Some states exempt direct descendants as well.

Although the federal government doesn’t have an inheritance tax, it does have a gift tax payable on some gifts made during the donor’s lifetime.

What Is an Inheritance Tax?

An inheritance tax is assessed on individual bequests, not an entire estate, by the state in which the decedent lived or where they owned property. Some people make provisions in their estate plans or wills that their estate should pick up the tab on behalf of the beneficiary.

Maryland, New Jersey, Pennsylvania, Kentucky, Iowa, and Nebraska have an inheritance tax as of 2020. Indiana had one but the state repealed it in 2013.

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