4 things you should know about inheritance tax (2024)

Death and taxes are the only certainties in life — and the inheritance tax touches on both.

It's a levy on money, property or other assets a person leaves to others after they die. The recipient is responsible for paying inheritance tax, although several factors determine how much (if any) must be paid —from where the deceased lived to their relationship to the beneficiary.

Below, CNBC Select dives into the ins and outs of inheritance tax, including how it's calculated, who has to pay it and how to avoid it.

• What are inheritance taxes?
• Is there a federal inheritance tax?
• Which states have an inheritance tax?
• How do I avoid paying inheritance tax?
• How to utilize your inheritance effectively
• Bottom line

There is no federal inheritance tax. In fact, only six states tax inheritances.

Iowa

The tax ranges from 1% to 4%. Spouses, children, stepchildren, parents, grandparents and great-grandparents, grandchildren and great-grandchildren are exempt. Charities are exempt up to $500. (Iowa is eliminating its inheritance tax in 2025.)

Kentucky

The tax ranges from 4% to 16% on assets over $500 or $1,000, depending on the relationship to the deceased. Spouses, parents, children, stepchildren and grandchildren and siblings are exempt.

Maryland

The tax rate is 10% on assets over $1,000. Spouses, children, parents, grandparents, grandchildren, siblings and charities are exempt. Maryland. is the state that imposes both an inheritance tax and an estate tax.

Nebraska

Parents, children, siblings and grandparents pay 1% on assets over $100,000. Aunts, uncles, nieces and nephews pay 11% on assets over $40,000. All other heirs pay 15% on assets over $25,000. Spouses and heirs under age 22 are exempt.

New Jersey

The tax ranges from 11% to 16%, depending on the value of the assets and the relationship with the deceased. Spouses, children, parents, grandparents, grandchildren and charitable organizations are exempt. Siblings and sons/daughters-in-law are exempt up to $25,000.

Pennsylvania

The tax is 4.5% for lineal heirs (children, parents and grandparents) on assets over $3,500, 12% for siblings and 15% for other heirs. Spouses, children under 21 and charities are exempt.

Any effort to affect the inheritance tax has to be taken by the person making the bequest, not their beneficiaries.

Aside from moving from a state that doesn't have the inheritance tax, the easiest way to limit your beneficiaries' tax burden is to gift them assets while you're still alive: In 2024, individuals can gift up to $18,000 tax-free to as many recipients as they want without it counting toward their lifetime exemption on the federal gift tax. (Married couples can give up to $36,000 combined.)

The lifetime limit on exemptions was temporarily boosted by the Tax Cuts and Jobs Act of 2017 and is currently $13.6 million. However, without congressional action, it will revert to $7 million in 2026, adjusted for inflation.

Of the Americans anticipating an inheritance, the average value of the assets they expect to receive is roughly $739,000, according to a July 2023 New York Life survey.

Beneficiaries can only do so much to avoid inheritance taxes, but educating yourself before you receive a bequest and making smart financial moves after can make a big difference.

Get qualified advice

A good first step if you're inheriting a large sum of money is to seek out professional advice. According to the New York Life report, more than half (58%) of Americans expecting an inheritance say they don't feel very comfortable handling that new wealth.

When considering a financial advisor or planner, it's important to keep your goals in mind. Financial advisors tend to focus on shorter-term objectives or specific events, while planners look at the larger picture. Betterment offers a variety of financial tools and access to certified financial planners that will help you create a comprehensive financial game plan. There is a minimum balance requirement of $100,000 and an annual fee of 0.40% of your investment.

Consider real estate investment trusts

A real estate investment trust (REIT) is a company that owns or invests in properties that generate income — like housing developments, shopping malls, office buildings, resorts or parking garages. Investing in a REIT offers exposure to the real estate market without having to manage a property yourself.

Some REITs are publically traded on an exchange just like traditional stocks or mutual funds and can be accessed through abrokerage account. With Robinhood, you can buy REITs on your own without paying a commission, while Charles Schwab allows customers to go it alone or make broker-assisted trades for a service charge of up to $25.

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