1. Money
You can opt-out at any time. Please refer to our privacy policy for contact information.
Julie Garber

Does a State Inheritance Tax Depend On Where the Heir Lives or the Deceased Lived?

By March 4, 2013

Follow me on:

In the U.S., an inheritance tax is a tax imposed by a state based on the privilege of an heir to receive the assets of a deceased person. In other words, an inheritance tax is based on who inherits the deceased person's property, not on the overall value of the estate.

Currently there are only seven U.S. states that collect an inheritance tax: Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Each of these seven states has its own separate laws dictating who is exempt from the state inheritance tax and who will have to pay the tax. Regardless, for an heir to be potentially subject to the state inheritance tax, the deceased person had to either have lived in a state that collects a state inheritance tax, or owned real estate or had tangible personal property located in a state that collects a state inheritance tax.

So, for example, if you inherit the estate of your uncle who lived in Kentucky at the time of his death and you live in California, will your inheritance be subject to the Kentucky inheritance tax? The answer is yes, your inheritance will be subject to the Kentucky inheritance tax, because you are classified as a "Class B" heir under Kentucky law who will not be exempt from the tax. What if the deceased person was your father? Then the answer is no, your inheritance will not be subject to the Kentucky inheritance tax, because you are classified as a "Class A" heir under Kentucky law who is exempt from paying the tax. However, if your father lived in Pennsylvania, then your inheritance would be subject to the Pennsylvania inheritance tax because in Pennsylvania children are not classified as heirs who are exempt from the state inheritance tax.

Let's turn it around, for example, if you inherit the estate of your uncle who lived in California at the time of his death and he did not own any property located outside of California, and you live in Kentucky or Pennsylvania, will your inheritance be subject to the Kentucky or Pennsylvania inheritance tax? The answer is no, your inheritance will not be subject to the Kentucky or Pennsylvania inheritance tax, because your uncle was a California resident who did not own out of state property, and California has not collected an inheritance tax since 1982. But what if your uncle who lived in California at the time of his death owned a house in Kentucky or Pennsylvania? Then your inheritance of the house will be subject to the Kentucky or Pennsylvania inheritance tax because it is physically located in a state that collects a state inheritance tax.

For a general summary of the state inheritance tax laws, refer to my State Inheritance Tax Chart. For specific information about inheritance tax laws in a particular state, refer to the links provided below:

Comments
No comments yet. Leave a Comment
Leave a Comment

Line and paragraph breaks are automatic. Some HTML allowed: <a href="" title="">, <b>, <i>, <strike>

©2014 About.com. All rights reserved.