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Five states tax an inheritance for deaths in 2026, and what you inherit can produce taxable income later. In inheritance tax planning we settle four facts before documents or distributions close off your options: where the decedent lived, who receives what, which assets move and when ownership changes.
The inheritance itself is not federal income. What the asset earns afterward is, under IRS Publication 559.
Five states tax the transfer for deaths in 2026: Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. The rate depends on the beneficiary’s relationship to the decedent.
Do the review before you retitle an asset, make a large gift, fund a trust or distribute an estate; a completed transfer cannot be undone for tax.
A state charges inheritance tax on what each beneficiary receives, at a rate set by that person’s relationship to the decedent. An estate tax is charged on the estate before anything reaches the beneficiaries; Maryland charges both. In inheritance tax planning we check which state can tax each asset, since each state’s right to tax depends on where the decedent lived and where the asset is located.
The inheritance itself is not income, but the interest, rent and dividends it earns are, and so are withdrawals from an inherited traditional IRA, which the decedent never paid tax on. Inherited property takes a basis equal to its value at the date of death, so a sale soon afterward produces little gain; our inherited property sale guide covers the basis rules.
| Inheritance tax | Estate tax | Income tax | |
|---|---|---|---|
| Who pays | The beneficiary, under state law | The estate, before distribution | The estate, trust or beneficiary that receives the income |
| What sets the amount | The state, the relationship, the asset and its value | The estate’s value under federal or state rules | The type of income, its timing and the basis |
| First document to review | Will, trust, beneficiary schedule, title records | Asset inventory, valuations, prior gifts, estate documents | Forms 1099 and K-1, account statements, sale records |
| Next step | Map the state exposure by beneficiary | Confirm the filing scope with the estate team | Classify the income before filing or selling |
Five states, for deaths in 2026. Rates and exemptions are from each state’s revenue department, checked October 7, 2026.
| State | Exempt heirs | Taxed heirs and 2026 rate |
|---|---|---|
| Kentucky | Spouse, parents, children, grandchildren, siblings | Nieces, nephews, aunts, uncles and in-laws 4% to 16% above $1,000; everyone else 6% to 16% above $500 |
| Maryland | Spouse, children and other descendants and their spouses, parents, grandparents, siblings | Everyone else 10% |
| Nebraska | Anyone under 22 | Siblings and descendants 1% above $100,000; remote relatives 11% above $40,000; everyone else 15% above $25,000 |
| New Jersey | Spouse, civil union or domestic partner, children, grandchildren, parents, grandparents | Siblings and sons- and daughters-in-law 11% to 16% above $25,000; everyone else 15% to 16% |
| Pennsylvania | Spouse, and a child aged 21 or under | Children and other lineal heirs 4.5%, siblings 12%, everyone else 15%, from the first dollar |
Send the decedent’s state and the list of beneficiaries, and we tell you who owes tax and at what rate.
Where the decedent lived, where any real property is located, each beneficiary and their relationship, and the accounts, business interests and foreign assets involved. The beneficiary’s own state does not set the tax.
State inheritance tax, federal or state estate tax, the estate’s or trust’s income tax, and the beneficiary’s income tax, each assigned to the person who pays it.
Beneficiary choices, lifetime gifts, trust funding, charitable gifts and liquidity, each measured for control, basis, income tax and reporting together.
Attorney, executor, trustee, appraiser and tax preparer work from one fact set, with a named person to value the assets, file, pay and keep the records.
Iowa charges no inheritance tax on deaths on or after January 1, 2025 (Iowa Department of Revenue). For a death before that date, the old Iowa rates still apply and we review them separately.
How to avoid inheritance taxes starts with who inherits: each state exempts some relationships entirely, and a change of beneficiary has to match the owner’s wishes.
A lifetime gift or trust changes who owns the asset and when it leaves the estate, and with it the owner’s control, access, basis and income tax. We model the result before an attorney changes documents or title; no gift or trust removes the tax on its own.
We set out who pays, when, and which assets cover it without a forced sale, then carry the plan into estate and trust compliance once the legal documents are signed.
$300,000 passing under Pennsylvania law in 2026, before the $3,500 family exemption and any deductions.
| Beneficiary | Rate | Tax |
|---|---|---|
| Surviving spouse | 0% | $0 |
| Child aged 21 or under | 0% | $0 |
| Adult child | 4.5% | $13,500 |
| Sibling | 12% | $36,000 |
| Niece, nephew or friend | 15% | $45,000 |
Where did the decedent live? Where is real property located?
Who receives each asset? What is the relationship?
Cash, property, retirement account, business, trust or foreign asset?
Confirm the exemption, valuation, filing, cash and who is responsible
You've already paid tax on this money when you are earning it actively, and then all of a sudden it gets taxed again when it goes to your child or your grandchild or whoever it's going to. So proper estate planning is very important.
I highly recommend Dimov Tax for their swift, professional service and deep expertise. The team is fantastic at explaining tax options clearly and providing kind, thorough support. An excellent choice for both startup founders and individual taxpayers!
We set the quote from these factors:
One state, one class of beneficiary, and an estate of cash and a home is at the light end. These are the factors, not a quote.
Send the states involved, a list of who receives what, an asset summary, the estate documents and any expected transfer or sale dates. Inheritance tax advice starts with a paid consultation: we identify the tax questions, mark what belongs with legal counsel and send a written scope before any inheritance tax planning work. Our consultation options are set out in advance.
These are general rules and are not advice on your situation. Each state sets its own classes and exemptions, so speak to a CPA before you rely on a rate.
