Fewer than 1 in 1,000 estates owe federal estate taxes, as the exemption level is historically high—$15 million per person. However, this doesn’t mean there aren’t tax issues to consider in estate planning or when you inherit different kinds of assets. A recent article from Kiplinger, “Estate Tax vs Inheritance Tax: Who Actually Pays the Bill?” will help you understand the differences and navigate estate planning and inheritance decisions.
An estate tax is a tax on the transfer of assets upon a person’s death. The tax is calculated based on the total value of the decedent’s estate before assets are distributed. The executor or personal representative usually pays any estate tax before beneficiaries receive any inheritance.
The estate’s assets may include cash and investment accounts, real estate, business interests, trust interests, retirement accounts, personal property and other assets. Some states impose their own estate taxes, with exemption amounts far lower than the current federal threshold.
Massachusetts, for example, has a $2 million estate tax exemption, so an estate may not owe federal taxes in The Bay State. However, it will owe state estate taxes if the entire estate is valued at more than $2 million.
How much will be paid in inheritance taxes are usually assessed only after assets are distributed. However, planning may be done in advance to minimize these taxes. Heirs who live in a state with an inheritance tax pay the inheritance tax themselves. Even then, surviving spouses don’t pay inheritance tax, and children and other close relatives may pay at a lower rate, depending upon the state’s laws and their relationship to the decedent. An estate planning attorney in the state where the decedent lived will help figure out who owes what in inheritance taxes.
Perhaps the biggest difference between the inheritance tax and the estate tax is who pays, when they pay and when it applies.
Three key factors are considered when determining whether estate or inheritance taxes apply:
- The size of the estate
- Where the deceased lived at the time of death and, in some cases, where their property was located
- The relationship of the beneficiary to the deceased
If your estate approaches federal or state exemption thresholds, estate planning strategies, including lifetime gifting, charitable gifting, or trusts, can help reduce future tax exposure for heirs. Speak with an experienced estate planning attorney to learn what strategies are best suited for your situation.
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Reference: Kiplinger (July 24, 2026) “Estate Tax vs Inheritance Tax: Who Actually Pays the Bill?”
