Does inheritance tax apply to all estates?

No, inheritance tax doesn’t apply to all estates. There is no federal inheritance tax, just an estate tax that applies to estates over $13.99 million as of 2025. At the state level, only six states have inheritance taxes, and many have exemptions.

Is estate planning only beneficial for wealthy people?

No, estate planning can be beneficial for everyone. It can help you ensure that you’re able to pass your estate to the beneficiaries of your choice with the least tax implications possible. You can also use estate planning to potentially avoid probate processes for your loved ones.

Are trusts use for tax evasion?

In some cases, yes, trusts are used for tax evasion purposes . However, there are plenty of legal and ethical ways to use trusts to pass your estate on to your chosen beneficiaries.

Is it illegal to avoid inheritance tax?

Yes, it is illegal to avoid inheritance tax if you owe it — it’s tax evasion. You could face significant penalties, fines, and other financial or legal consequences if you don’t pay your inheritance tax. There are legal ways, however, that you may be able to reduce your tax burden; an accountant can help you assess your options.

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Inheritance Tax 2025: Rates, Exemptions and How to Avoid It

April 14, 2025

7 min Read

Written by Ana Gotter

Edited by Emily Gadd

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If you pass away and leave property, money or possessions to a loved one, your estate may owe a tax to the government. While there is no federal inheritance tax, some states do require that some beneficiaries pay an inheritance tax.

States That Impose Inheritance Tax

Only five states have an inheritance tax:

State	Tax Amount	Exceptions
Kentucky	0-16%	– Immediate family members like a spouse, parents, siblings, or children
Maryland	0-10%	– Property passing to any one person not exceeding a total of $1,000. – Personal property of a non-resident with the exception of tangible property located in Maryland.
Nebraska	0-15%	– Property located outside of Nebraska – Assets covered by the homestead allowance. – Transfer of assets to a charitable organization, government entity, surviving spouse.
New Jersey	0-16%	– Surviving spouse, children, siblings, parents and grandchildren are exempt. – Donations to charitable institutions are exempt.
Pennsylvania	0-15%	– A surviving spouse does not have to pay inheritance tax. – If parents inherit assets from a child under the age of 21, they don’t need to pay property tax. – Charitable donations are exempt.

Iowa had an inheritance tax, but it was repealed in 2025.

Inheritance Tax vs Estate Tax

The biggest difference between the inheritance and estate tax is who pays. Put simply: estate tax comes out before you get your inheritance; inheritance tax comes out after you receive it.

Estate Tax

Estate tax is paid by the deceased person’s estate before any assets are distributed to heirs. It’s based on the total value of everything the person owned when they died. The federal government doesn’t charge estate taxes unless your estate is worth over $13.99 million. However, some states have an estate tax.

Inheritance Tax

Inheritance tax is paid by the people who receive the assets (the heirs), after the estate distributes them. Each heir pays tax only on what they personally received.

How to Calculate Inheritance Tax

If you were left an inheritance, you can calculate your inheritance tax by taking these steps:

Understand the value of the inheritance. Make sure you understand the full value of what you’re inheriting, including the value of property of tangible assets that may qualify.
Assess your tax rate and beneficiary class. This is often determined by your relationship with the deceased, and may vary depending on the state you live in.
Look for exemptions. Some states may have exemptions or waivers available to reduce your taxable burden.
Calculate your tax. Multiply the taxable value of your inheritance with your tax rate to determine the tax you owe.

It’s important to review your state’s rules carefully. In Kentucky, for example, class B beneficiaries may include relatives like nieces, nephews, aunts, uncles and great grandchildren. These beneficiaries will receive a $1,000 exemption.

Let’s say your aunt left you $50,000. You’re a class B beneficiary, which means you’ll have a $1,000 exemption, leaving your taxable inheritance at $49,000. You’ll need to pay $2,660 + 10% for the amount over $45,000, which would be $400. This would put your total tax owed at $3,060.

In Kentucky, you can also get a 5% discount if you pay within nine months of the decedent’s death date. This could reduce your overall tax burden to $2,907.

Because tax law can be complex, it can be a good idea to work with a financial professional. They can help you take advantage of any exemptions or discounts, and ensure you won’t receive penalties for incorrect or late payments later.

How to Minimize or Avoid Inheritance Tax

If you’re leaving an inheritance to your loved ones, there are a few ways you can legally minimize or potentially even avoid the inheritance tax they may owe.

Gifting

You can reduce inheritance taxes by giving away assets while you’re still alive. The federal government allows you to gift up to a set amount each year– which is $19,000 in 2025— without paying gift tax.

Larger lifetime gifts use your federal estate tax exemption but remove future growth from your taxable estate. Many states with inheritance taxes don’t tax gifts made during your lifetime.

Trusts

Setting up certain trusts can help minimize inheritance taxes.

Irrevocable trusts remove assets from your estate, while still allowing some control over how they’re used.
Special trusts like Qualified Personal Residence Trusts (QPRTs) let you transfer your home to beneficiaries at a reduced tax value.
Bypass trusts can help married couples maximize both spouses’ exemptions.

Since trusts can be complicated, it’s a good idea to speak with an accountant and an estate planner to ensure that you’re choosing the right trust structure for you.

Charitable Giving

Donations to qualified charities are exempt from inheritance and estate taxes. You can leave assets directly to charities in your will or create a charitable trust.

With a Charitable Remainder Trust, you can provide income to your heirs for a set period, with the remainder going to charity. This provides both inheritance tax benefits and potential income tax deductions during your lifetime.

Paying the Inheritance Tax Step-by-Step

If you need to pay an inheritance tax, here are the steps you’ll need to follow:

Determine if you owe tax: Check if your state has an inheritance tax and if you’re exempt based on your relationship to the deceased.
Calculate what you owe: Calculate your taxes yourself, or work with a tax professional to determine the taxable value of your inheritance after any exemptions and deductions.
File the necessary forms: Complete your state’s inheritance tax return (forms vary by state) by the deadline.
Pay the tax: Submit payment to your state’s department of revenue through check, money order, or electronic payment — your state will specify how to do so.
Keep records: Save copies of all tax returns, payment confirmations, and related documents for at least seven years.
Request an extension if needed: If you can’t pay by the deadline, contact your state tax agency about payment plans or extensions to avoid penalties.

Final Thoughts and Planning Tips

Inheritance tax affects only a small number of Americans since it exists in just six states. Most close relatives are exempt, and there’s no federal inheritance tax at all.

With proper planning through gifting, trusts and charitable giving, many people can minimize or avoid these taxes entirely. Understanding the basics helps you prepare and protect your family’s assets for future generations, and an estate attorney can help you choose which options are best for you.

If you do face inheritance taxes, working with a tax professional can help you navigate the process smoothly and ensure you meet all requirements.

Frequently Asked Questions about Inheritance Tax

Although the basic idea behind inheritance tax can be simple to understand, there are still many common questions surrounding it. If you still have questions, here are some answers that can help.

Does inheritance tax apply to all estates?
- No, inheritance tax doesn’t apply to all estates. There is no federal inheritance tax, just an estate tax that applies to estates over $13.99 million as of 2025. At the state level, only six states have inheritance taxes, and many have exemptions.
Is estate planning only beneficial for wealthy people?
- No, estate planning can be beneficial for everyone. It can help you ensure that you’re able to pass your estate to the beneficiaries of your choice with the least tax implications possible. You can also use estate planning to potentially avoid probate processes for your loved ones.
Are trusts use for tax evasion?
- In some cases, yes, trusts are used for tax evasion purposes. However, there are plenty of legal and ethical ways to use trusts to pass your estate on to your chosen beneficiaries.
Is it illegal to avoid inheritance tax?
- Yes, it is illegal to avoid inheritance tax if you owe it — it’s tax evasion. You could face significant penalties, fines, and other financial or legal consequences if you don’t pay your inheritance tax. There are legal ways, however, that you may be able to reduce your tax burden; an accountant can help you assess your options.

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