As of late 2025, five states impose an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. These states levy taxes on assets inherited by beneficiaries, with rates and exemptions often depending on the relationship to the deceased. Iowa's inheritance tax is phased out, ending in 2025.
The five worst states for estate planning right now are Washington, Maryland, Oregon, New York, and Rhode Island. The best states for estate planning are those without separate estate or inheritance taxes—Florida, Nevada, Texas, Arizona, Wyoming, and South Dakota are standouts.
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, ...
Children generally inherit significant amounts tax-free due to the high federal estate tax exemption, which is $13.99 million per individual for 2025, with a planned reversion to a lower amount ($5 million adjusted for inflation) in 2026, meaning very large estates are taxed, but most inheritances fall below this threshold, though some states have their own inheritance taxes. Heirs also benefit from the "step-up in basis," which lowers capital gains tax on inherited assets like stocks and real estate.
Key Takeaways. 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.
You can typically inherit a very large amount from your parents without paying federal tax, as the federal estate tax exemption is around $15 million per person for 2026, meaning only estates larger than that pay tax, not you directly. While you generally don't pay income tax on inheritances (except for pre-tax retirement funds like IRAs/401(k)s, which are taxed as income when withdrawn), some states have their own estate or inheritance taxes with much lower thresholds, affecting a smaller portion of wealth.
Yes, you can give your son $100,000 tax-free in 2025 by utilizing the annual gift tax exclusion and your lifetime exemption, but you'll need to report the gift to the IRS on Form 709 since it exceeds the $19,000 annual limit, though you won't pay tax unless you exceed your much larger $13.99 million lifetime gift/estate tax exemption. The gift is considered yours (the giver) for tax purposes, not your son's.
In most cases, an inheritance isn't subject to income taxes. The assets passed on in an investment or bank account aren't considered taxable income, nor is life insurance.
The simplest way of avoiding Inheritance Tax is via the spouse or civil partner exemption rule. This covers couples who are either legally married or in a civil partnership.
To avoid inheritance tax, the best places to live are U.S. states with no state estate or inheritance tax, such as Florida, Texas, Nevada, Arizona, South Dakota, and others listed below, which allows your heirs to receive assets without state-level death taxes, though federal rules and other state taxes (like property/income) still apply; for international options, countries like Singapore or specific Swiss cantons like Schwyz have no inheritance tax, but residency and asset location are key.
You can typically inherit a large amount without federal taxes because the tax applies to the deceased's estate, not the recipient, and the exemption is very high: $13.99 million in 2025 and $15 million in 2026 per person, meaning most inheritances fall below this threshold. The key is that the estate's total value must exceed these limits for any tax to be owed by the estate. Inheritances themselves (cash, property) are generally not income, but earnings on them (like interest/dividends) or pre-tax retirement funds (like IRAs) are taxable.
You can deposit a large cash inheritance into a savings account, either by check or by wire transfer to your bank.
The IRS generally can't seize assets essential for basic living, like necessary clothing, schoolbooks, furniture, and tools of your trade (up to certain limits), plus items like unemployment, workers' comp, child support, and public assistance payments, along with a portion of your wages. However, major assets like your home, vehicles, bank accounts, and retirement funds can be seized, though the IRS must follow procedures and often seeks the quickest collection method, usually targeting liquid assets first.
Taking both 7 year periods together means that you need to know how much of the NRB has been used on chargeable transfers ('chargeable' gifts) for up to 14 years before death. This is what's known as the 14 year shadow (or sometimes the 14 year rule).
Beneficiaries generally do not pay income tax on the principal amount of inherited cash or bank accounts, but they do pay taxes on any interest earned after the date of death, and on certain pre-tax retirement funds (like traditional IRAs). State laws vary, with some states having specific inheritance or estate taxes, while federal estate tax usually falls on the estate itself, not the beneficiary.
You can typically inherit a very large amount from your parents before hitting federal estate tax thresholds, which are around $15 million per individual in 2026, meaning most heirs receive tax-free inheritances because estates rarely exceed this limit; however, some states have their own estate or inheritance taxes, and income from inherited assets (like IRAs or rental income) is usually taxable, according to this U.S. Bank article, this Fidelity article, this Domain Money article, and this Tax Foundation article.
Understanding U.S. estate tax
U.S. persons are subject to U.S. estate tax based on their worldwide estate, but non-U.S. persons, including non-resident aliens (i.e., Canadians who are not U.S. persons), may also be subject to U.S. estate tax if the value of their U.S. situs assets exceed USD $60,000.