Inheritance Tax Calculator

How to Use the Inheritance Tax Calculator

This calculator helps beneficiaries estimate how much inheritance tax they may owe based on three key factors: the value of the inherited estate, the state where the deceased resided, and the relationship between the deceased and the beneficiary. Start by entering the total value of the inheritance you expect to receive, then select the applicable state and your relationship to the deceased.

Inheritance tax differs from estate tax in a fundamental way. Estate tax is levied on the total value of a deceased person's estate before distribution, while inheritance tax is paid by each individual beneficiary based on what they receive. Only six US states currently impose an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. If the deceased lived in any other state, no inheritance tax applies, regardless of where the beneficiary resides.

The tax rates and exemptions vary significantly by state and by the beneficiary's relationship to the deceased. Spouses are universally exempt in all six states. Children and direct descendants receive either full exemptions or very low rates in most states, with Pennsylvania being the notable exception at 4.5%. Siblings typically face moderate rates ranging from 4% to 12%, while unrelated beneficiaries bear the highest rates, often between 10% and 16%.

Keep in mind that this calculator provides simplified estimates based on general rate tables. Actual inheritance tax calculations may involve additional deductions, credits, and specific exemptions not captured here. States occasionally update their tax rates and exemption thresholds, so it is important to verify current rates with a tax professional or the relevant state tax authority before making financial plans.

State-by-State Inheritance Tax Overview

Pennsylvania applies a flat rate based on relationship: 0% for spouses, 4.5% for children, 12% for siblings, and 15% for others. Maryland levies a flat 10% on all non-exempt beneficiaries. Kentucky and Iowa use graduated marginal rate structures that increase with the size of the inheritance, similar to income tax brackets. Nebraska provides exemptions that vary by relationship class, with a 1% rate for children, 11% for siblings, and 15% for others above their respective exemption amounts. New Jersey exempts spouses and children entirely, while taxing siblings at 11% and others at 15-16%.

Planning to Minimize Inheritance Tax

Several legal strategies can reduce inheritance tax exposure. Making gifts during your lifetime within the annual gift tax exclusion can transfer wealth without triggering inheritance tax. Establishing certain types of irrevocable trusts can remove assets from the taxable estate. Life insurance policies owned by an irrevocable trust can provide liquidity to pay any taxes due without depleting the inheritance. For significant estates, consulting an estate planning attorney in the relevant state is strongly recommended.

Frequently Asked Questions

What is inheritance tax and how is it different from estate tax?

Inheritance tax is paid by the person who receives an inheritance, while estate tax is paid by the estate of the deceased before assets are distributed. Only 6 US states currently levy an inheritance tax. Maryland is unique in levying both an estate tax and an inheritance tax.

Which US states have an inheritance tax?

Six states levy an inheritance tax: Iowa (being phased out), Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Each state has different exemption amounts and tax rates that vary based on the relationship between the deceased and the beneficiary.

Are spouses exempt from inheritance tax?

Yes, surviving spouses are exempt from inheritance tax in all six states that levy it. In most states, children and direct descendants also receive full exemptions or very low rates.

How are inheritance tax rates determined?

Rates depend on the state where the deceased resided and the relationship between the deceased and the beneficiary. Closer relatives receive lower rates or full exemptions, while distant relatives and unrelated heirs face higher rates.

Can I avoid inheritance tax?

Legal strategies include gifting assets during your lifetime, establishing irrevocable trusts, purchasing life insurance, or relocating to a state without inheritance tax. Consulting an estate planning attorney is recommended.