Definition
A state tax paid by the person who receives an inheritance, calculated on the value received and the heir's relationship to the deceased. Only a small number of states impose one, spouses are generally exempt, and children and other close relatives typically pay less than distant relatives or unrelated heirs. There is no federal inheritance tax; the federal levy on large estates is the estate tax, which the estate pays before anything is distributed.
Why it matters
Which tax applies depends on where the deceased lived and, for real estate, where the property sits, not on where the heir lives. An heir in a state with no inheritance tax can still owe one on a bequest from a relative in a state that has it.
Example
A nephew inherits $50,000 from an aunt in a state whose inheritance tax charges, say, 10% on transfers to relatives outside the immediate family. He owes $5,000 and keeps $45,000. The aunt's surviving spouse, who inherited the house and the rest of the estate, owes nothing because spouses are exempt.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.