Estate tax is paid by the deceased person's estate based on the net value of assets at death, while inheritance tax is paid by beneficiaries on what they receive. Estate taxes are paid to the federal or state government, while inheritance taxes are paid only to state governments where applicable.
Estate Taxes: An Overview
That means any appreciation in the estate's assets over time will be taxed, but it protects those who inherit assets that have dropped in value. For example, if a house was bought at $5 million, but its current market value is $4 million, the latter amount will be used for tax purposes.
If you received a gift or inheritance, do not include it in your income. However, if the gift or inheritance later produces income, you will need to pay tax on that income.
The states with no state estate tax as of mid-2023, are Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, ...
Many people worry about the estate tax affecting the inheritance they pass along to their children, but it's not a reality most people will face. In 2025, the first $13,990,000 of an estate is exempt from federal estate taxes, up from $13,610,000 in 2024. Estate taxes are based on the size of the estate.
Washington Estate Tax Exemptions and Rates
Washington has the highest estate tax rate in the Nation, of up to 20%, and they do not offer spousal portability which allows a surviving spouse to utilize their deceased spouse's unused exemption.
Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don't qualify for reporting.
Therefore, inheritances do not impact eligibility, and no reporting requirements exist for inheritances or assets received. Before assuming an inheritance will forfeit your benefits, check which program you receive—SSI or SSDI.
Aside from the taxes that an estate pays, beneficiaries may be responsible for paying taxes on the property that they inherit. Tax liability attaches to and moves with estate assets. Therefore, beneficiaries will be responsible for any tax liability not already paid by the estate.
Making a will to distribute your assets
Whether leaving assets to a spouse or civil partner, distributing assets to take advantage of tax-free allowances, or making gifts to charity, a valid will could help you to reduce or avoid Inheritance Tax altogether.
Most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections, or jointly held property) do not require the filing of an estate tax return.
The tax is paid by the estate itself before assets are distributed to heirs. , with a top rate of 40 percent, 12 states and the District of Columbia impose additional estate taxes, while six states levy inheritance taxes. Maryland is the only state that imposes both an estate and an inheritance tax.
For 2025, the federal estate tax threshold is $13.99 million for individuals, which means married couples don't have to pay estate if their estate is worth $27.98 million or less. For 2024, the threshold was $13.61 million for individuals and $27.22 million for married couples.
Although an inheritance won't affect your Medicare benefits, it could raise your premiums in the short-term. Medicare is a federal health insurance program for people aged 65 or older, some younger people with disabilities, or people with end-stage renal disease (ESRD).
If your spouse dies, do you get both Social Security benefits? You cannot claim your deceased spouse's benefits in addition to your own retirement benefits. Social Security only will pay one—survivor or retirement. If you qualify for both survivor and retirement benefits, you will receive whichever amount is higher.
In Summary. In short, here are the three ways you could be disinherited: (1) full disinheritance, (2) retaining your inheritance in trust with a hostile trustee managing it, or (3) a reduced share that forces you to make a tough decision.
Another key difference: While there is no federal inheritance tax, there is a federal estate tax. The federal estate tax generally applies to assets over $13.61 million in 2024 and $13.99 million in 2025, and the federal estate tax rate ranges from 18% to 40%.
Deposit the money into a safe account
Your first action to take when receiving a lump sum is to deposit the money into an FDIC-insured bank account. This will allow for safekeeping while you consider how to make the best use of your inheritance.
Note that under a separate reporting requirement, banks and other financial institutions report cash purchases of cashier's checks, treasurer's checks and/or bank checks, bank drafts, traveler's checks and money orders with a face value of more than $10,000 by filing currency transaction reports.
Federal tax laws do not consider most inherited assets to be taxable income.
If everyone agrees, you could sell or rent out the house together, as business partners. If the rental market is strong, or if you're inheriting a house that is paid off, it might make sense to lease the house to a reliable tenant. But consider the time and money required to own and operate a rental property.
An inheritance tax is levied on the value of the inheritance received by the beneficiary, and it is paid by the beneficiary. There is no federal inheritance tax. Inherited assets may be taxed for residents of Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.