Inheritance tax

What it means

Inheritance tax is charged to the beneficiary, and the rate usually depends on how closely related they were. A surviving spouse is normally exempt; a distant relative or a friend is normally taxed most.

There is no federal inheritance tax. Only a small number of states charge one.

A state can charge inheritance tax on property located there even if the person who died lived elsewhere.

Why it matters

It is charged to individuals, so it can arrive as a personal bill long after somebody thought the estate was finished.

It is also the tax families most often confuse with estate tax, and the two work in opposite directions — one on the giver's estate, one on the receiver.

When you are likely to meet it

• When receiving an inheritance in one of the states that charge it.
• When a relative in such a state dies.
• When an executor has to withhold before distributing.

How this varies by state

Which states charge inheritance tax, which relationships are exempt, and at what rates, are set by state law. Sahvelo publishes the rule where it has read the statute.

Related terms

• BeneficiarySomeone who receives something because a document says so.
• DomicileThe one state a person legally belongs to, where they intend to remain. It decides where the estate is administered and which state's law governs their personal property.
• EstateEverything the person owned at the moment they died, treated as one thing that has to be settled.
• Estate taxA tax on the value of what somebody left, paid by the estate before anything is distributed.
• Fiduciary returnThe income tax return an estate or trust files for money it earns after the death.
• HeirSomeone entitled to inherit under state law when there is no will — not simply a relative.
• Inheritance tax waiverA document from a state tax authority releasing an asset so it can be transferred, used in the few states that charge inheritance tax.
• PortabilityA surviving spouse's right to use whatever federal estate tax exclusion their spouse did not — but only if it is claimed.

Sahvelo guidance that uses this

• Taxes after a death
• New Jersey inheritance tax