Difference Between Estate Tax and Inheritance Tax

If you’re planning your estate or navigating an inheritance, learning about potential tax implications is one step toward making informed decisions. When it comes to estate planning, terms like estate tax and inheritance tax often come up. While they may sound similar, they might impact your financial picture in different ways.

What is an estate tax?

Estate tax is applied to the value of someone’s estate at the time of death, before the assets are distributed. It's based on the total value of your cash, investments, property, and other assets. This tax is paid by the estate, not by the individuals receiving the inheritance.

Taxes can make a large impact on what your beneficiaries receive, but there are a variety of ways to help reduce taxes and make sure you pass along assets, including the strategic use of personal trusts, beneficiary management, charitable giving, and gifting.

What is an inheritance tax?

Inheritance tax is a tax paid by the beneficiary on the value of the assets they inherit. Only a few states collect inheritance tax including Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania. Rates often vary based on the size of the inheritance and your relationship to the deceased, with many states providing favorable terms for immediate family members.

Learn more about inheritance tax here.

In Summary:

• Estate tax is paid by the estate before distribution
• Inheritance tax is paid by the person receiving the inheritance
• Both depend on state-specific laws and exemptions

Why does this matter?

Estate and inheritance taxes may impact how assets are passed on, the total amount that beneficiaries receive, and the strategies individuals choose for gifting or transferring wealth. StackStone Wealth can help you evaluate options that align with your goals, including strategies for gifting, charitable giving, or asset transfer planning. While we don’t provide legal or tax advice, we work closely with your attorney or CPA to support a well-rounded, intentional approach.

Whether you’re navigating your own estate strategy or managing an inheritance, our team is here to help you stay informed and supported every step of the way.