Inheritance tax guide: Rules for giving & receiving

Receiving inheritance money from a friend or family member can be emotional, but working out your tax obligations can make the process even harder.

Although you won’t pay inheritance tax to the federal government, some US states may levy taxes on inherited assets. You’ll also pay estate tax on estates worth over 15,000,000 USD.

We take a look at the tax implications of inheritance, including everything you need to know about inheritance tax, estate tax, and lessening your tax burden.

If you are receiving an inheritance from abroad, managing international transfer costs is another important factor to keep in mind. Let’s dive in!

Estate tax vs. inheritance tax: What’s the difference?

Estate tax is levied on the overall value of a deceased person’s assets. The estate pays it before any beneficiaries receive their inheritance, which can reduce the total inherited amount.

In comparison, inheritance tax is levied on the individual assets once they’ve been distributed – and the beneficiary must pay it.

The Internal Revenue Service (IRS) will determine the value of an estate, including assets like real estate, stocks, cash, and retirement accounts. Rates range from 18% to 40%, depending on the overall value of the deceased person’s estate.

Some states may also impose their own estate tax.¹ The deceased’s estate will need to file and pay these taxes, as well as any federal charges, before you can receive your inheritance. Any tax paid after that is considered inheritance tax.

The 2026 federal estate tax thresholds

The federal government uses tax thresholds to work out when an estate is considered taxable. In 2026, the lifetime estate tax exemption is 15,000,000 USD per individual or 30,000,000 USD for married couples filing jointly.

All estates valued below these thresholds won’t be liable for federal estate tax, which means any beneficiaries will receive the full amount of their inheritance.¹

However, special rules apply to non-US citizens or non-residents who own US assets. The US estate tax exemption threshold for non-residents is just 60,000 USD, which can increase the tax paid by the deceased person’s estate.

For estate tax purposes, a person is typically considered a non-resident if they don’t live in the US.² If you inherit assets abroad, there may be some additional tax obligations, reporting requirements, and costs.

As well as lower thresholds for estate tax exemption, you may also pay exchange rate fees to transfer your foreign inheritance back to the US. All of these costs can chip away at your total inherited amount.

Using a low-cost money transfer provider like Wise can help manage currency conversion charges. You can receive payments from the US or send large amounts of money overseas, using the mid-market exchange rate.

State rules: Inheritance tax at the local level

There’s no federal inheritance tax in the US, which means local and foreign inheritances aren’t taxable under the law. However, 5 states charge state inheritance tax: Nebraska, Kentucky, Pennsylvania, Maryland, and New Jersey.

In 2025, Iowa’s inheritance tax scheme was fully phased out. There are now 45 states with no inheritance tax, as well as Washington, D.C.

State inheritance tax only applies if the deceased person lived or owned property in a state that charges inheritance tax. It doesn’t affect heirs who live in that state.

The rate you’ll pay will depend on the deceased person’s connection with that state, as well as your relationship with them as the beneficiary.

Many states don’t levy inheritance tax on close family members, such as spouses, parents, or children, but friends and distant family may be liable to pay it.³

US state inheritance taxes at a glance

Here’s a comparison of each state’s inheritance taxes, including Nebraska, Kentucky, New Jersey, Pennsylvania, and Maryland. Consult a US tax specialist to understand the tax implications of your inheritance.

How to lessen the tax burden legally

There are a few ways to legally reduce how much estate and inheritance tax you and your loved one will pay. Let’s take a look at some common ways to reduce your tax bill.

Annual gifting

Annual gifting is a popular option for those who wish to transfer large sums of money tax-free to beneficiaries.

In line with the IRS’s annual gift tax exclusion, you can give up to 19,000 USD per recipient per year without using up your lifetime gift and estate tax exemption. Married couples can give a combined 38,000 USD per recipient per year.

This is a good way to help your beneficiaries avoid a large estate tax or inheritance tax bill at the time of your death.⁴

Irrevocable trusts

An irrevocable trust moves assets from your estate to your chosen trustees. Essentially, it transfers ownership of your money, property, or other assets to decrease the overall value of your estate and reduce your estate taxes.

Make sure to think carefully before setting up a trust. As the grantor, you must relinquish control and transfer legal ownership of your assets to your trustee. You likely won’t be able to access them without permission.⁵

For further advice and support in managing your money, check out our guide to transferring large amounts of money internationally.

Strategic relocation

If you manage significant assets or you own a large estate, you may want to strategically relocate to a new home before your beneficiaries inherit.

For example, if you live in a state like Maryland, which levies both state inheritance tax and state estate tax on top of federal estate tax, it may make sense to move to a state like Virginia, where the local government won’t charge inheritance tax.

Remember: state inheritance tax comes with many exemptions and caveats, particularly for close relatives. This means very few people actually end up paying it. Look into the nuances of state tax implications before making a decision.

Tax is the last thing you want to think about when you’ve lost a loved one. However, there are several important tax implications of inheritance to understand before you can receive your money.

You won’t pay inheritance tax to the federal government, but you may owe state inheritance tax. You’ll also need to look into how estate tax will cut into your inherited assets.

With a little planning ahead, you and your loved ones can avoid hefty tax burdens while still staying compliant with federal and state law.

If you need to move your inheritance between countries, using an international money transfer provider like Wise can help you navigate exchange rates and cross-border transfers.

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