How Much Are Estate & Inheritance Taxes?

Estate tax is paid by the estate itself before assets are distributed to heirs. It is based on the total estate value. Inheritance tax is paid by individual beneficiaries on what they receive, with rates varying by their relationship to the deceased. Some states have estate tax, some have inheritance tax, and Maryland has both.

12 states plus Washington DC have estate taxes: Connecticut, Washington DC, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. Exemptions range from $1 million (Oregon) to $15 million (Connecticut). Most have progressive rates up to 12-20%.

5 states have inheritance taxes: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Iowa repealed its inheritance tax effective 2025. Rates and exemptions vary by beneficiary relationship, with spouses typically fully exempt and distant relatives or unrelated beneficiaries paying the highest rates.

Yes, several strategies can reduce death taxes: lifetime gifts using the annual exclusion ($$19,000 per recipient in 2026), charitable bequests (fully deductible), marital deduction for spouses, generation-skipping trusts, and qualified personal residence trusts. A revocable living trust does not reduce estate taxes, but it does avoid probate — which can save 5% to 8% of the estate on a separate dimension, depending on the state. Consult an estate planning attorney for strategies appropriate to your situation. If probate avoidance is the goal, a revocable trust set up online through SimplyTrust accomplishes that.

Inherited money and property are generally not subject to federal income tax. Beneficiaries receive assets at a stepped-up basis equal to fair market value on the date of death (IRS Gifts and Inheritances guidance), so no income tax is owed at the time of inheritance. Capital gains tax applies only if you later sell inherited property for more than that stepped-up basis. Distributions from an inherited traditional IRA are a major exception — beneficiaries must include those distributions in gross income (IRS Publication 590-B). 5 states impose a separate inheritance tax paid by beneficiaries: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.

Gift tax and estate tax work together. Gifts above the annual exclusion ($19,000 per recipient in 2026) must be reported on Form 709 even when no tax is owed. The IRS uses adjusted taxable gifts made during life in the computation of estate tax at death (IRS Estate Tax FAQ), so lifetime gifts reduce what the estate can shield from tax. Recipients of a gift generally don't owe federal income tax on what they receive.