A death tax is a tax on property or money that passes to heirs when someone dies

The term "death tax" refers to taxes owed on an estate — the total value of everything a person owned at the time of death. The two main types are federal estate tax and state inheritance tax. Federal estate tax applies to estates above a certain value and is collected before heirs receive anything. State inheritance tax, where it exists, is paid by the people who inherit the money or property, not by the estate itself.

Most people do not owe a death tax because federal thresholds are high. In 2024, federal estate tax only applies to estates worth more than $13.61 million for a single person or $27.22 million for a married couple. State inheritance taxes exist in only a handful of states and have their own thresholds, usually much lower. The tax is paid from the estate's assets before distribution to heirs, or by the heirs themselves depending on the state and type of tax.

Key Takeaways

  • Federal estate tax applies only to estates exceeding $13.61 million (single) or $27.22 million (married) as of 2024, and these thresholds change yearly.
  • State inheritance taxes exist in only six states — Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — and have lower thresholds than federal tax.
  • The executor of an estate is responsible for filing the federal estate tax return (Form 706) if the estate is large enough, even if no tax is ultimately owed.
  • Heirs in states with inheritance tax may owe tax on what they receive, but the amount varies by state and the relationship between the heir and the deceased.

Federal estate tax and how much it takes

Federal estate tax is a tax on the total value of everything you own when you die — your house, bank accounts, investments, vehicles, and personal property. The IRS calls this your "taxable estate." Before calculating the tax, certain deductions are allowed, such as debts owed by the estate, funeral expenses, and property left to a surviving spouse or to charity.

The tax rate is 40 percent on the amount above the threshold. Because the threshold is so high, fewer than one in every thousand estates owe federal tax in any given year. The threshold, called the "exemption," changes each year based on inflation. It was $13.61 million in 2024 and is expected to drop to around $7 million per person in 2026 unless Congress acts. A married couple can combine their exemptions, effectively doubling the threshold.

The executor of the estate must file Form 706 (the federal estate tax return) with the IRS if the estate exceeds the threshold, even if no tax is ultimately owed. This return is due nine months after death, though an extension can be requested. The executor pays the tax from estate assets before distributing money to heirs.

State inheritance taxes and who pays them

Six states have inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. These taxes work differently from federal estate tax. Instead of taxing the estate itself, state inheritance tax is owed by the person who inherits the money or property. The amount owed depends on the value of what they inherit and their relationship to the deceased.

In most of these states, spouses and children pay little or no tax, while more distant relatives and unrelated heirs pay higher rates. For example, in Pennsylvania, a spouse or child pays 0 percent tax on inherited property, but a niece or nephew pays 15 percent. The thresholds are also much lower than federal thresholds — some states exempt the first $5,000 to $25,000 per heir, depending on the state and relationship.

The executor or the heir themselves may be responsible for filing and paying the state inheritance tax, depending on the state. Some states require the executor to withhold tax before distributing assets to heirs. Others allow heirs to pay directly to the state. The deadline is usually within nine months of death, matching the federal deadline.

The difference between estate tax and inheritance tax

Estate tax and inheritance tax are often confused because both apply when someone dies, but they work in opposite directions. Estate tax is paid by the estate itself — the total pool of assets — before anyone inherits. Inheritance tax is paid by the person who receives the inheritance. The federal government uses estate tax. States that have a death tax use either inheritance tax (six states) or estate tax (twelve states), or both.

This distinction matters because it changes who owes the money and when. With estate tax, the executor pays from the estate's assets, so heirs may receive less than they would have without the tax. With inheritance tax, the heir receives their share and then owes tax on it, so they must have funds available to pay. Some states allow heirs to pay the tax in installments if the inheritance includes real property like a house.

States with estate tax versus inheritance tax

Twelve states and the District of Columbia have state estate taxes: Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. These work similarly to federal estate tax — they tax the total estate value, and the executor pays from estate assets. Thresholds range from $1 million in Oregon to $6.94 million in Massachusetts, and they vary by year.

The six states with inheritance tax — Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — tax the heirs instead. Maryland is unique because it has both an estate tax and an inheritance tax. If you live in or own property in multiple states, you may owe tax in more than one state, though federal law prevents double taxation in most cases.

What happens if you do not file or pay

If an estate owes federal estate tax and the executor does not file Form 706, the IRS can assess penalties and interest. The penalty for late filing is typically 5 percent per month of the unpaid tax, up to 25 percent. Interest accrues daily on any unpaid tax. If the estate is very large and the executor intentionally avoids filing, criminal charges are possible, though rare.

For state inheritance taxes, the consequences depend on the state. Most states impose penalties similar to federal penalties — a percentage of unpaid tax plus interest. Some states can place a lien on inherited property until the tax is paid. If an heir does not pay state inheritance tax, the state may pursue collection through wage garnishment or bank levies.

An executor who fails to pay taxes owed by the estate can be held personally liable in some cases. This is why executors often work with a tax professional or attorney to ensure all returns are filed correctly and on time.

Planning to reduce or avoid death taxes

People with large estates often work with an attorney or tax professional to plan ahead and reduce the tax burden. Common strategies include giving money to family members during your lifetime (up to $18,000 per person per year in 2024 without triggering gift tax), placing assets in a trust, donating to charity, or using life insurance to cover potential taxes.

A revocable living trust does not reduce estate taxes but can help avoid probate and keep your estate private. An irrevocable trust can remove assets from your taxable estate if set up correctly, but you lose control of those assets. Charitable giving reduces the taxable estate dollar-for-dollar. These strategies require professional guidance because the rules are complex and mistakes can be costly.

If you think your estate might owe taxes, or if you are an executor of a large estate, consulting a tax professional or estate attorney is important. They can review your situation and explain which strategies make sense for your circumstances.

Frequently Asked Questions

Do I owe death tax if my spouse dies?

No federal estate tax is owed if you are the surviving spouse, because property left to a spouse is fully deductible from the taxable estate. However, state inheritance taxes may apply depending on your state. Six states have inheritance tax, and most exempt spouses from paying it.

What if I inherit money from someone who lived in a different state?

You may owe inheritance tax in the state where the deceased lived or owned property, depending on that state's laws. If you live in a state with inheritance tax and inherit from someone outside that state, you typically do not owe tax in your state. Consult a tax professional if you inherit property in multiple states.

Can an executor refuse to pay estate taxes?

An executor cannot legally refuse to pay taxes owed by the estate. If taxes are owed and not paid, the IRS or state can pursue the executor personally for the unpaid amount. An executor who is unsure whether taxes are owed should consult a tax professional before distributing assets to heirs.

Does life insurance count toward the estate tax threshold?

Yes, life insurance proceeds are included in your taxable estate unless the policy is owned by someone else or held in an irrevocable trust. This can push a large estate over the threshold. Some people buy life insurance specifically to cover potential estate taxes.

What is the deadline to file an estate tax return?

The federal estate tax return (Form 706) is due nine months after death. An extension can be requested, typically giving an additional six months. State inheritance tax returns have similar deadlines, usually nine months from death, though some states allow longer if the federal return is extended.