What Is Inheritance Tax?

An inheritance tax is a tax imposed on the recipient (澳洲幸运5官方开奖结果体彩网:beneficiary) of an estate, meaning the person receiving 🐽assets from a deceased individual may be responsible for paying it. 

Individuals who live in Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania and are bequeathed assets may have to pay a tax on their inheritance. This inheritan🦋ce tax is levied on the value of the bequeathment r😼eceived by the beneficiary, and the beneficiary pays it.

How the Inheritance Tax Works 

Whether you have to pay an 澳洲幸运5官方开奖结果体彩网:inheritance tax and how much that tax will be depends on a few factors. The first is what state or states the decedent lived or owned property—this will determine whether the beneficiary must pay the tax and how much. As a beneficiary, your state's inheritance tax rule, if any, doesn't apply. That means that if the individual wh꧑o gave you an inheritance lived in a state wiജthout an inheritance tax, you won’t have to pay it.

If they did live in a sta🐭te with an inheritance tax, the next determining factor is your relationship to the deceased. Most states with an inheritance tax have carve-outs for immediate family members (spouses, parents, children, siblings), so these individuals won’t be responsible for pay👍ing this tax in those states. 

Certain states provide exemptions for immediate family members up to a certain threshold of the value of the bequeathment. That value is the final determining factor of whether you have to pay an inheritance tax and how much. Each state has its own limits, but they are often generous. Only around 2% of people typically ever have to pay an inheritance tax.

Inheritance Tax Exemptions and Thresholds

Each state has its own family member exemptions and thresholds for when an inheritance tax is levied. There is no federal inheritance tax. Here they are, broken down by state (note: Iowa eliminated its inheritance tax as of this year, meaning it doesn’t apply to assets bequeathed from individuals who died on or after Jan. 1, 2025).

Kentucky

Immediate family members (spouses, parents, children, siblings) are exempt; other family members (excluding cousins) are exempt up to $1,000, and the tax rate is 4% to 16%. Cousins and other beneficiaries are exempt up to $500, and the tax rate is 6% to 16%. The charges minimum amounts plus a percentage at certain thresholds.

Maryland

Immediate family (parents, grandparents, spouses, children, grandchildren, siblings) and charities are exempt, as are beneficiaries from small estates valued at $50,000 or less. Other recipients are exempt up to $1,000. The tax rate is 10%.

Nebraska

Spouses, relatives under the age of 22, and charities are fully . Immediate family members (parents, grandparents, siblings, children, grandchildren) are exempt up to $100,000 and pay a 1% tax on inheritances exceeding that amount. Other relatives are exempt up🐻 to $40,000 or are subject to an 11% tax, while unrelated heirs are exempt up to $25,0❀00 or pay 15%.

New Jersey

Immediate (spouse, children, parents, grandparents, grandchildren) and charitable organizations are exempt. Siblings and sons/daughters-in-law are exempt up to $25,000. The tax rate ranges from 11% to 16%, depending on the size of the inheritance and the familial relationship.

Pennsylvania

Spouses and children 21 years old and younger are exempt. Adult children, grandparents, and parents are exempt up to $3,500. The tax rate is 4.5%, 12%, or 15%, depending on the relationship.

Inheritance Tax vs. Estate Tax

While an inheritance tax and an 澳洲幸运5官方开奖结果体彩网:estate tax both may apply after someone's death, they are distinct taxes wit✃h different tཧriggers.

• Estate tax: Assessed on the estate itself before its assets are distributed, while an inheritance tax may be imposed on the beneficiaries of a bequest. 
• Inheritance Tax: Imposed on the value of the inheritance received by a beneficiary, and it is the beneficiary who must pay it.

Both levies are based on the 澳洲幸运5官方开奖结果体彩网:fair market value of a deceased person's property, usually as of the date of death. But an estate tax is levied on the value of the decedent's estate, and the estate pays it. In contrast, an inheritance tax is levied on the 澳洲幸运5官方开奖结果体彩网:value of an inheritance received by the🐼 beneficiary, and it is the beneficiary who🔯 pays it.

The distinction between an estate tax and an inheritance tax with identical rates and e𝔉xemptions might make no difference to a sole heir. However, in rare situations, an inheritance could be subject to estate an🐭d inheritance taxes.

Avoiding the Inheritance Tax

Most people will not end up paying an inheritance tax, given the carve-outs for immediate family members and exemptions for inheritances up to certain amounts. However, residents with significant assets in a state with an inheritance tax may still want to take steps to minimize the exposure for their heirs.

You could also put assets in a trust—preferably an irrevocable trust. This effectively removes these assets from your♌ estate and their classification as an inheritance upon your death. You can set up a schedule to distribute the funds when you establish the trust.

The Bottom Line

Only residents of five states—Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania—are at risk of paying an inheritance tax on assets they receive from a decedent. Even among these state’s residents, only those who aren’t immediate family members and/or those receiving large inheritances will have to pay the tax. If you live in one of the💟se states and want to help your beneficiaries avoid a tax, consider a life insurance policy or establishing a trust.