The terms “estate tax” and “inheritance tax” are often confused, but they are fundamentally different taxes applied to wealth transfer after death. Knowing the distinction is vital for proper estate planning.
The primary difference boils down to who pays the tax and how the tax is calculated:
| Feature Who Pays? What is Taxed? Level of Government Tax Rate Factor | Estate Tax | Inheritance Tax The heir or beneficiary who receives the assets. The value of the individual inheritance received by a beneficiary. Only at the state level (just six states currently impose one). Often determined by the heir’s relationship to the deceased. |
| The deceased person’s estate (paid by the executor before distribution). | ||
| The net value of the entire estate above a certain exemption level. | ||
| Federal and in some states (12 states + D.C. impose a state estate tax). | ||
| Determined by the total value of the estate. |
Export to Sheets
The Estate Tax in Focus
The federal estate tax has a high exemption threshold (over $13 million per person in 2025), meaning it only affects a small fraction of large estates. If the estate exceeds this amount, the tax is paid by the estate’s funds, which reduces the total amount left to the heirs. A dozen states and D.C. also impose their own estate taxes with much lower exemption limits.
The Inheritance Tax in Focus
Inheritance taxes are less common, existing in just Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania (Iowa is phasing it out in 2025). The most critical factor is the beneficiary’s relationship to the deceased. For example, most states with this tax exempt spouses, and many exempt or offer lower rates to children or grandchildren. Non-relatives often face the highest tax rates.
If you live in a state with one type of tax but own property or inherit from someone in a state with the other, you could potentially be subject to both. Consulting with a qualified estate planning or tax professional is the only way to ensure your legacy is protected and your loved ones are not surprised by an unexpected tax bill. For all your questions, we highly recommend checking with Adam Brown, Estate Planner and Real Estate Attorney.