An inheritance tax–also sometimes referred to as a legacy or succession tax–is a state tax that must be paid by a person who receives property from the estate of a decedent, either through a will or intestate succession. Unlike an estate tax, the inheritance tax is levied against the beneficiary of an estate, and not against the estate itself. Only six states–Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania–currently impost an inheritance tax, with each state determining their own rules for who must pay the tax and how much they must pay. Generally, states exempt immediate family members from having to pay inheritance taxes, though this is not the case in every state. Additionally, more distant family members usually do not receive an exemption. Further, most states place beneficiaries in different tax brackets based on the closeness of a beneficiary’s relation to the decedent, the amount a beneficiary receives, or both.
[Last updated in June of 2020 by the Wex Definitions Team]