Legal Definitions - inheritance tax

An inheritance tax is a state tax that must be paid by a person who receives property from the estate of a deceased person. This tax is also known as a legacy or succession tax. Unlike an estate tax, the inheritance tax is levied against the beneficiary of an estate, and not against the estate itself.

Currently, only six states in the United States impose an inheritance tax. These states are Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Each state has its own rules for who must pay the tax and how much they must pay.

For example, in Pennsylvania, immediate family members are exempt from paying inheritance taxes, but more distant family members do not receive an exemption. Beneficiaries are placed in different tax brackets based on the closeness of their relation to the deceased person and the amount they receive.

Let's say that John's grandfather passed away and left him $100,000 in his will. If John lives in Pennsylvania, he may have to pay an inheritance tax on that $100,000. However, if John's father had passed away and left him the same amount, he would not have to pay an inheritance tax because he is an immediate family member.