Understanding Death, Estate, and Inheritance Taxes

Types of Federal and State Taxes Imposed After Death

1. What is an estate tax?

An estate tax is a tax imposed by a state or federal government on the right to transfer property to your heirs after your death. As of 2009, the District of Columbia and the following states impose a separate state estate tax: Connecticut, Delaware, Illinois, Kansas, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Rhode Island, Tennessee, Vermont, and Washington. Refer to the State Estate Tax Chart for a list of each state's estate tax exemption. With regard to the federal estate tax, it is scheduled to disappear in 2010 and then reappear in 2011, but no one believes that Congress and President Obama will allow this to happen.

2. What is an inheritance tax?

An inheritance tax is a tax imposed by a state government on the privilege of an heir to receive a deceased person's assets. The following 7 states collect an inheritance tax - Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. In all 7 states assets left to a surviving spouse are exempt from the inheritance tax, but only 4 states exempt transfers to descendants. Two states, Oregon and Tennessee, collect what is referred to in their state statutes as an inheritance tax but the tax is based on the value of the decedent's property, not on who receives the property, so these states are listed above in reference to estate taxes. Refer to the State Inheritance Tax Chart for more information about state inheritance taxes.

3. What is a death tax?

The phrase "death tax" is commonly used to refer to an estate tax or an inheritance tax - in other words, it's a tax imposed on the transfer of property after death, be it based on the total value of the decedent's property or who is inheriting the property. Aside from this, the phrase "death tax" was coined years ago to put a negative spin on the federal estate tax.