Planning for what happens after you are gone is never an easy topic, but it’s an important one. Whether you’re trying to protect your loved ones from financial stress or simply want to understand the tax laws that could impact your estate, our guide is here to help. Below, we answer some of the most common death tax questions about estate taxes, inheritance taxes, and how you can minimize the tax burden on your heirs.
At a glance:
Estate taxes are paid by the estate itself, with exemptions varying at the federal and state levels.
Inheritance taxes are paid by the beneficiaries and depend on state laws and relationships to the decedent.
Only Maryland imposes both estate and inheritance taxes.
Proper estate planning can help minimize or avoid these taxes.
Estate and inheritance tax FAQs
What is the death tax?
“Death tax” is a catch-all phrase people sometimes use to describe taxes owed after someone passes away. It’s not an official term in the IRS tax code, but it pops up often in conversations around tax planning. Usually, when you hear someone say, “death tax,” they are talking about the estate tax or the inheritance tax (or sometimes both).
Estate tax vs. death tax
These are just two names for the same thing! Estate tax is the official term, while death tax is commonly used as an umbrella term for both estate and inheritance taxes in conversations and the media.
What is the federal death tax?
The federal death tax is simply the federal estate tax. The IRS doesn’t officially use the term “death tax,” but the federal government does collect an estate tax if someone’s estate is large enough.
Basically, if a person’s total assets exceed the federal exemption amount (which we’ll go over later), their estate might owe federal estate tax before anything goes to the heirs and beneficiaries.
There is no federal inheritance tax, so if you hear someone talking about a federal death tax, it’s really just the estate tax.
Was the Death Tax Repeal Act of 2025 passed?
No, the Death Tax Repeal Act has not been passed into law. While Congress has discussed eliminating the federal estate tax several times, no bill to fully repeal it has become law.
However, due to a provision in the One Big Beautiful Bill Act, the federal estate tax exclusion will increase to $15 million in tax year 2026 — a bigger jump than normal.
What is the difference between estate tax and inheritance tax?
While estate and inheritance taxes are often lumped under the term “death taxes,” the key differences lie in who pays the tax and how it’s calculated. Here’s a cheat sheet for you:
Who pays an estate tax and who pays an inheritance tax?
Estate tax: The estate is responsible for paying this tax before distributing any assets to the beneficiaries. No estate tax is due if the estate’s value is under the exemption amount.
Inheritance tax: Individual beneficiaries and heirs pay this tax, but only if they live in or inherit from someone in a state that imposes inheritance tax. Not all states do!
What’s included in an estate?
A taxable estate includes all the assets the person owned or had an interest in at the time of death. Here’s what that might cover:
Real estate
Life insurance proceeds (if the deceased owned the policy)
Investments, including stocks, bonds, and annuities
Bank accounts
Personal property like cars, jewelry, or art collections
What is the estate tax exemption amount?
The estate tax exemption amount is the threshold below which an estate won’t owe any federal estate tax. For 2025, the exemption is $13.99 million per person (up from $13.61 million in 2024). If an estate is valued at less than that, no federal estate tax is due.
The estate tax exemption amount is indexed for inflation, meaning it increases every year to keep up with rising costs.
What are the estate tax exemption amounts by state?
Some state governments also impose estate taxes, often with much lower exemption thresholds than the federal level. Twelve states and the District of Columbia impose estate taxes as of 2025. Here are the exemptions for each:
Connecticut – $13,990,000
District of Columbia – $4,873,200
Hawaii – $5,490,000
Illinois –$4,000,000
Maine – $7,000,000
Maryland – $5,000,000
Massachusetts – $2,000,000
Minnesota – $3,000,000
New York – $7,160,000
Oregon – $1,000,000
Rhode Island – $1,802,431
Vermont – $5,000,000
Washington – $2,193,000
Estate tax rates also vary by state — most use marginal rates, but some use a flat estate tax rate.
What is the federal estate tax rate?
The federal estate tax rate varies from 18% to 40%, depending on how much your estate’s value exceeds the exemption limit:
What are some estate tax examples?
Let’s say Maria passes away, leaving behind an estate worth $15.38 million. After applying the exemption amount of $13.99 million, her taxable estate is $1.39 million. Since her estate’s value exceeds the exemption limit by more than $1 million, it falls in the 40% federal tax bracket (see table in previous section). At a federal estate tax rate of 40%, her estate owes $556,000 to the IRS before assets can be distributed. If Maria lived in a state that levied estate taxes, we’d use the same formula to calculate any state estate tax owed.
Now, let’s say Maria’s estate was only worth $2 million. In this scenario, her estate would not be taxed at the federal level because it is worth less than the exemption amount ($13.99 million). Whether her estate owes state taxes depends on her state’s exemption amount. However, note that only Oregon and Rhode Island have exemption amounts lower than $2 million in 2024.
Do I need to file both estate and inheritance tax returns?
It all depends on where you live (and where the deceased lived) and if the estate or inheritance exceeded the exemption amounts.
You may need to file an estate tax return if:
The estate’s total value is greater than the federal exemption amount ($13.99 million for 2025).
You live in a state with its own estate tax, and the estate’s value is above that state’s exemption threshold.
The estate owns property or assets in a state with estate tax laws, even if the deceased didn’t live there.
In the above scenarios, the executor or personal representative of the estate usually handles filing the federal and/or state estate tax return(s).
You may need to file an inheritance tax return if:
You receive an inheritance from someone who lived or owned property in one of the handful of states that charge an inheritance tax.
The type or amount of property you inherit meets the state’s filing requirements. Rules and exemptions vary by state, and your relationship to the deceased may affect whether you owe tax.
Individual beneficiaries are responsible for filing an inheritance tax return in these states. Each beneficiary may need to file separately, depending on what they receive.
You only need to file both if:
The estate is large enough to owe federal or state estate tax, so the executor must file an estate tax return.
At the same time, you are a beneficiary living in a state with an inheritance tax, so you must file your own tax return for your share.
Do beneficiaries pay tax on inherited assets?
Generally, most inherited property isn’t considered taxable income for federal tax purposes. However, there are a few exceptions:
You may owe income tax on withdrawals if you inherit tax-deferred accounts like a traditional IRA or 401(k).
In states with an inheritance tax, you could owe tax based on what you received and your relationship to the deceased.
Cash, investments, and property typically aren’t taxed as federal income when you inherit them, but always double-check the rules for your specific situation.
Remember, while there is no federal inheritance tax, a handful of states still impose inheritance taxes.
How do estate taxes work for married couples?
For married couples, the estate tax law offers significant benefits:
Unlimited marital deduction: Any assets left to a surviving spouse are exempt from estate taxes.
Double exemption: The federal exemption amount ($13.99 million in 2025) applies to each spouse, making the estate exemption amount for married couples $27.98 million in 2025.
Portability: The unused portion of the first spouse’s exemption amount can be transferred to the surviving spouse, effectively doubling the exemption for the second death (see example below).
Example scenario
Jordan passes away, leaving $10 million to his wife, Alex. No federal estate tax applies. When Alex passes later, her estate can use both her and Jordan’s estate tax exemptions, shielding up to $27.99 million from taxes for tax year 2025.
Note: To do this, Jordan’s estate must file a federal estate tax return and elect to allow Alex to use his exemption at the time of her death.
Are nonresidents subject to estate tax?
Yes, nonresident aliens may owe U.S. estate tax on property and assets they own in the United States, like real estate or investments. The exemption for nonresidents is much lower (typically $60,000) compared to U.S. citizens and residents. Only U.S.-based assets count, and some countries have tax treaties with the U.S. that can reduce or even eliminate estate tax on certain assets for nonresidents. If this might apply to you, it’s probably a good idea to consult a tax professional with international experience.
Are life insurance payouts taxable under the estate tax?
Avoiding estate and inheritance tLife insurance benefits paid to a named beneficiary are usually not taxed as income. However, if the estate itself is the beneficiary or the policyholder had “incidents of ownership” in the policy, the payout could be included in the estate’s value. If that pushes the estate over the federal exemption amount, a part of the life insurance payout could be subject to estate tax.axes altogether isn’t always possible, but proper estate planning can significantly reduce the tax burden on your heirs.
Is a trust subject to estate tax?
It depends. Assets placed in a revocable trust (one you can change or cancel during your lifetime) are usually included in your estate for estate tax purposes. Irrevocable trusts (which you can’t change once they’re set up) may remove assets from your taxable estate if set up correctly and early enough.
Setting up a trust can be a smart way to manage estate taxes, but the rules can be tricky. It’s a good idea to consult a tax professional or estate planning attorney if you’re considering this option!
How long do I have to file an estate tax return?
For federal estate taxes, the executor usually has nine months from the date of death to file IRS Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return. But you can request a six-month extension if you need more time. State filing deadlines might be different, so always check your state’s requirements as well.
Can I avoid these taxes altogether?
Avoiding estate and inheritance taxes altogether isn’t always possible, but proper estate planning can significantly reduce the tax burden on your heirs.
How can I minimize estate and inheritance taxes?
Here are some strategies to potentially lower your estate’s tax liability:
Gift assets tax-free during your lifetime to reduce your estate’s value.
Set up an irrevocable trust to shelter assets from taxation.
Purchase life insurance to cover anticipated tax liabilities.
Use charitable donations to lower the taxable estate.
Take advantage of state-specific exemptions and tax credits.
The bottom line
Estate and inheritance taxes can feel complicated, but understanding how they work helps you take charge of your estate planning. Whether you’re dealing with the federal estate tax, a state inheritance tax, or both, thoughtful tax planning can protect your loved ones and reduce the overall tax burden.
If you need help navigating estate or inheritance tax returns as a taxpayer, TaxAct® is here to guide you. Our easy-to-use tax software supports you with step-by-step tools for filing, plus clear explanations every step of the way. You don’t have to tackle your taxes alone — let TaxAct help you file with confidence and keep your estate planning on track.
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