Estate tax versus inheritance tax
Key takeaway
Federal estate tax applies to the transfer of a taxable estate, while Maryland inheritance tax applies to receiving property subject to its exemptions. In Minnesota, for example, the state taxable estate starts with the federal taxable estate even when federal estate tax does not apply. Other states differ.
Research notice: Based on primary sources linked below. Use official state figures and forms for the applicable death or gift date. Ask an estate attorney or CPA to confirm an election, filing decision, deadline or tax calculation before acting.
The federal estate tax comparison concerns decedents who were U.S. citizens or residents. In Rhode Island, official guidance describes estate tax as a transfer tax on estate value before distribution to beneficiaries. For the Maryland comparison, property must pass from a decedent and have Maryland taxable situs, subject to Maryland's statutory exemptions. Beneficiary relationship matters for specified exemptions, but the exemption scheme includes more than family relationships.
Start your review with three separate questions: which tax is being discussed, which property is involved, and which recipient receives it? Then ask who must pay and which documents establish the answer. For the Minnesota example, ask counsel to review the state's additions, subtractions and apportionment rather than treating the federal starting point as a complete state calculation.
Estate payment and beneficiary responsibility
The executor must pay federal estate tax. That payment duty does not determine the ultimate allocation of the tax among recipients.
If federal estate tax remains unpaid when due, certain recipients can become personally liable under IRC §6324(a)(2). The person must receive, or possess at death, property included in the gross estate under IRC §§2034 through 2042. Covered persons are the spouse, transferee, trustee, surviving tenant, beneficiary, or a person possessing property because of the exercise, nonexercise or release of a power of appointment. Liability is limited to the property's value at death. A trustee of an employees' trust meeting IRC §401(a) is excepted.
In Maryland, when someone dies with a will, inheritance tax on a legatee's receipt may be paid by the estate or by the legatee. A will's tax clause can charge that tax to the estate. When someone dies without a will, an heir pays inheritance tax on the heir's receipt. Payment allocation does not change the classification of the tax.
Georgia has no inheritance tax.
Sources: Georgia estate tax repeal
On and after July 1, 2014, Georgia levies no state estate tax and requires no state estate tax return. Prior taxable year liabilities and refund eligibility remain governed by prior law.
The historical estate tax payment discussion concerns estates of people who died before January 1, 2005. Georgia Department of Revenue: Estate Tax FAQ
Sources: Iowa inheritance tax repeal and earlier payment duties
Iowa inheritance tax does not apply to deaths on or after January 1, 2025. For an earlier death where the tax applied, the beneficiary is responsible for payment and the personal representative must see that it is collected and paid.
Iowa Department of Revenue: Introduction to Iowa Inheritance Tax
New Jersey property owners and inheritance tax
New Jersey inheritance tax depends on who the beneficiaries are and their relationships to the decedent, asset values and debts at death, asset types, and the decedent's legal residence.
Sources: New Jersey estate tax repeal
New Jersey has no estate tax for deaths on or after January 1, 2018, but inheritance tax remains in force.
New Jersey Division of Taxation: Inheritance Tax Overview and Estate Tax Repeal
For a New Jersey resident decedent, inheritance tax property scope includes New Jersey real property and tangible personal property, together with all intangible personal property. For a nonresident decedent, that scope includes only New Jersey real property and tangible personal property. Both scope rules remain subject to beneficiary and asset exemptions. See which New Jersey beneficiaries are exempt and the life insurance exemption.
Bring deeds, ownership records, asset descriptions, valuations, debt records and evidence of the decedent's legal residence to the review.
Pennsylvania rates, transfers and payment timing
Pennsylvania inheritance tax rates depend on the recipient's relationship to the decedent. The relationship categories and exemptions matter when reading the following schedule:
- 0% applies to a surviving spouse or to a parent receiving from a deceased child aged 21 or younger.
- 4.5% applies to direct descendants and lineal heirs.
- 12% applies to siblings.
- 15% applies to other heirs, except exempt charitable organizations, exempt institutions and exempt government entities.
Pennsylvania inheritance tax covers estate value transferred to beneficiaries by will, heirs by intestacy and transferees by operation of law. Property jointly owned between spouses is exempt.
Pennsylvania inheritance tax payments are due at death and become delinquent nine months after death. A 5% discount is allowed if the tax is paid within three months after death.
Maryland beneficiaries and exemptions
Maryland's specified inheritance tax exemptions include property passing to or for the use of a grandparent, parent, spouse, child or lineal descendant of a child. They also include a spouse of a child or of a lineal descendant of a child, and a brother or sister. Child includes a stepchild or former stepchild. Parent includes a stepparent or former stepparent.
A qualifying surviving spouse of a deceased child or deceased lineal descendant of a child is included if married to that descendant at the descendant's death and not remarried. A corporation, partnership or limited liability company qualifies under this family ownership exemption only if all stockholders, partners or members are individuals within the listed exempt categories.
Maryland separately exempts life insurance proceeds payable to a beneficiary other than the insured's estate. Additional exemptions appear in Maryland's inheritance tax exemption statute.
Maryland generally applies a 10% inheritance tax rate to nonexempt collateral heirs and unrelated individuals. Collateral heirs include nieces, nephews, aunts, uncles and cousins. The statutory exemptions apply, including the family, entity and insurance exemptions described above.
Sources: Maryland rate and domestic partner exemptions
Maryland's guidance lists the 10% collateral heir rate from June 1, 1975 onward.
A surviving registered domestic partner is exempt from Maryland inheritance tax for deaths on or after October 1, 2023.
For deaths on or after July 1, 2009, the narrower domestic partner exemption covers the decedent and surviving partner's jointly held primary residence with a right of survivorship. The surviving partner must provide an Affidavit of Domestic Partnership or two proofs of partnership to qualify.
Other property remains subject to inheritance tax unless another statutory exemption applies. Maryland Register of Wills: Inheritance Tax Rates and Domestic Partners
Property outside probate
Maryland inheritance tax guidance addresses both probate and nonprobate receipts, subject to the statutory exemptions discussed above. Covered examples include joint interests in real or personal property and property over which the decedent retained dominion at death.
Another covered example is a material part of the decedent's property transferred within two years of death as a final disposition or distribution in contemplation of death, other than a bona fide sale.
Maryland inheritance tax payment timing
For Maryland probate property, inheritance tax payment accompanies the Administration Account showing distribution to the taxable individual or entity. For nonprobate property, payment is due when the Register of Wills assesses the tax and issues an invoice based on the Information Report or Application to Fix Inheritance Tax.
The invoice goes to the personal representative if the estate is liable, or to the beneficiary if that individual or entity is liable. Nonpayment within 30 days triggers a penalty fee and interest.
New Jersey life insurance exemption
New Jersey exempts life insurance proceeds paid to a named beneficiary from inheritance tax. Federal estate tax treatment of life insurance is a separate topic. Bring the beneficiary designation and policy documents to a policy review.
Use the official state resources below to check the applicable figures, exemptions and forms before making a filing or payment decision.
Inherited property and income tax
Federal gross income generally excludes the value of property acquired by inheritance, bequest or devise. The exclusion does not cover income from that property or a bequest of income from property. An inheritance tax exemption therefore does not establish an income tax exemption.
Income in respect of a decedent under IRC §691 includes gross income items not properly includible in the taxable period containing death or a prior period. This includes specified income of a prior decedent where the right was acquired through that prior death or by bequest, devise or inheritance.
The receiving estate or person specified in §691(a)(1) includes the income in the taxable year received. The estate includes it when the estate acquires the right from the decedent. A person acquiring the right because of the death includes it if the estate did not acquire that right from the decedent. A person acquiring the right by bequest, devise or inheritance includes it when payment follows the estate's distribution of the right.
Common questions
What determines Kentucky inheritance tax?
Kentucky inheritance tax depends on the beneficiary's relationship to the deceased person and the property's value. Kentucky has no estate tax. Class B beneficiaries receive a $1,000 exemption with rates of 4% to 16%. Class C beneficiaries receive a $500 exemption with rates of 6% to 16%. Great grandchildren are Class B, while nieces and nephews by marriage and great nieces and great nephews are Class C.
For a nonresident decedent, the beneficiary exemption is prorated using the resident exemption and the ratio of net Kentucky taxable property before federal estate taxes to total property transferred. Do not apply one rate to the entire inheritance. Consult the Kentucky resource below for detailed classifications and rate brackets.
Whose residence matters for New Jersey inheritance tax?
A decedent's legal residence at death determines resident or nonresident classification for New Jersey inheritance tax, and beneficiary residence is not a factor. See the New Jersey factor list and property scope for the other considerations.
Which New Jersey beneficiaries are exempt from inheritance tax?
Class A and Class E beneficiaries are exempt from New Jersey inheritance tax, and Class A includes spouses, children including legally adopted children, and stepchildren. The stepchild category excludes stepgrandchildren and their issue. Class D covers recipients outside Classes A, C and E.
See New Jersey's beneficiary schedule for the full classifications.
Resources to check out
- Maryland Register of Wills: Inheritance Tax: Review the exemptions and payment procedures referenced above.
- New Jersey Division of Taxation: Inheritance Tax Overview and Estate Tax Repeal: Find official guidance, forms, and beneficiary information.
- Pennsylvania Department of Revenue: Inheritance Tax: Review the rates, exemptions, and payment timing quoted above.
- Kentucky Department of Revenue: Inheritance Tax: Consult beneficiary classifications and filing resources.
- Iowa Department of Revenue: Introduction to Iowa Inheritance Tax: Check the repeal cutoff and guidance for earlier deaths.