Quick answer: An estate tax is charged on the total value of what a person leaves, and the executor files and pays it from the estate. An inheritance tax is charged on what each beneficiary receives, and the rate often depends on the beneficiary's relationship to the deceased. The federal government has an estate tax, and most relatively simple estates do not have to file a return for it. Some states add their own estate tax, some have an inheritance tax, and Maryland has both. Neither depends on whether an asset goes through probate.
On this page:
- The difference in one paragraph
- Side by side
- The federal estate tax
- How the states differ
- Probate is a separate question
- Who files and pays
- Check your state
The difference in one paragraph
The IRS describes the federal estate tax as a tax on your right to transfer property at your death, calculated on everything the person owned or had certain interests in, valued at fair market value. An inheritance tax is different in what it measures. Pennsylvania's Department of Revenue explains that its inheritance tax is imposed as a percentage of the value of the estate transferred to beneficiaries, and that the rate varies with the relationship of the heir to the decedent. So the estate tax looks at the estate as a whole, and the inheritance tax looks at what each person receives.
Side by side
| Estate tax | Inheritance tax | |
|---|---|---|
| What it measures | The total value of the estate | What each beneficiary receives |
| Who deals with it | The executor, on behalf of the estate | Measured on each beneficiary's share and collected through the state's process |
| What sets the amount | The size of the estate, with a return required only above a threshold | Usually the beneficiary's relationship to the deceased |
| Where it exists | Federal, plus some states | Only some states |
The federal estate tax
The federal estate tax is computed on the gross estate and then reduced by the unified credit. The IRS says most relatively simple estates do not require filing an estate tax return. When a return is needed, the executor files Form 706. The due date is nine months after the death, which our guide on how long probate takes covers together with the other clocks that run after a death.
How the states differ
The states go their own way. Some have an estate tax, some have an inheritance tax, and one has both. Two official examples show the range:
- Pennsylvania has an inheritance tax. The tax applies to transfers to beneficiaries by will, by intestacy and by operation of law, and the rate depends on the relationship. Property owned jointly between spouses is exempt.
- Maryland has both. Its Comptroller says the inheritance tax is imposed on the clear value of property passing to certain beneficiaries. The estate tax is filed by the duly appointed personal representative. To keep the two from stacking, the inheritance tax paid is subtracted from the gross Maryland estate tax liability.
Which states have which, and the thresholds, exemptions and rates in each, change and are set by state law. The State Estate Tax Calculator covers the states with an estate tax, and the Inheritance Tax Calculator covers the states with an inheritance tax.
Probate is a separate question
These taxes do not depend on whether an asset goes through probate. Maryland says its inheritance tax reaches property passing under a will, the intestate laws, and under a trust, deed, joint ownership, or otherwise. The IRS gross estate is defined by what the person owned or had interests in, not by how it passes. That is why the tools for avoiding probate in how to avoid probate do not, by themselves, avoid these taxes. For which assets probate does cover, see which assets go through probate.
Who files and pays
The personal representative is responsible for the returns of the estate. Publication 559 lists among the representative's duties filing all tax returns when due and paying the tax. In a state with an inheritance tax, the process usually runs through a designated office. Maryland's Comptroller, for example, says the inheritance tax is handled through the Register of Wills, while the estate tax is payable to the Comptroller. The representative's full list of duties is in what an executor does.
Check your state
Start with where the person lived, and where they owned real estate, because both can matter. The Estate Value Calculator shows what counts toward the estate, and the two tax calculators above show whether your state has a tax and how it applies. The rest of the tools are on the probate calculators page, and the methodology page explains how each rule is verified.