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How is an Inheritance Tax different than a tax on my Estate?
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Many confuse Inheritance Taxes with Estate Taxes.

Estate taxes are:

  • Imposed by the Federal government or state governments
  • Paid by the decedent’s estate
  • Minimized through the use of estate planning techniques

Inheritance Taxes are:

  • Imposed by some state governments
  • Paid by the individual inheriting the assets
  • Difficult to avoid (unless you change state residency)

Most individuals are not subject to Inheritance Taxes. As of 2013, only six states (Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania) imposed Inheritance Taxes and most of those states have exemptions for certain beneficiaries and certain types of property. The tax rate ranges from 1% to 18%.

For those living in a state with an Inheritance Tax, additional planning may be necessary. For example, spouses are exempt from Inheritance Tax but unmarried partners are not. Additional life insurance might be needed to provide for an unmarried partner, who will lose a portion of the inherited assets to the Inheritance Tax.

Making a gift while still alive avoids Inheritance Taxes.


NOTE: State laws change frequently and the following information may not reflect the most recent changes.


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