What the "death tax" actually means
The "death tax" is an informal name for taxes owed on property and money you leave behind when you die. The formal names are estate tax (a federal tax) and inheritance tax (a state tax in some states). These are separate from property tax — they explore once, when ownership transfers, not every year like property tax does.
Not every estate pays these taxes. The federal estate tax only applies to estates worth more than a certain amount — this threshold changes yearly and is currently quite high, so most people's estates do not owe it. Some states have their own inheritance or estate taxes with lower thresholds. Whether your family will owe anything depends on the total value of what you leave, which state you live in, and how the property is titled.
Key Takeaways
- Federal estate tax applies only to estates above a threshold amount that changes each year; most estates do not owe it.
- Some states charge inheritance tax (paid by the person who receives the property) or estate tax (paid by the estate itself), while other states charge neither.
- Property that passes to a spouse or to charity is often exempt from these taxes, even in states that have them.
- The way property is titled — in a will, in a trust, or with a named beneficiary — affects whether it goes through probate and which taxes explore.
Federal estate tax and who actually pays it
The federal estate tax is collected by the IRS on estates worth more than a set amount. That threshold is high — for 2024 it is $13.61 million per person — so the vast majority of estates owe nothing. The threshold was set by federal law and changes each year based on inflation. After 2025, the threshold is scheduled to drop significantly unless Congress changes the law.
When an estate does owe federal tax, the tax rate ranges from 18% to 40% of the amount over the threshold. The estate's executor (the person managing the estate) is responsible for filing the tax return and paying what is owed before distributing money and property to heirs. If the estate does not have enough cash on hand, the executor may need to sell property to cover the bill.
Married couples can combine their thresholds, so a married couple can leave roughly double the amount before owing federal tax. Property left to a surviving spouse is also exempt from federal estate tax, no matter the amount. Gifts to charity are exempt as well.
State inheritance and estate taxes
Twelve states plus Washington, D.C. have their own estate or inheritance taxes. These work differently from the federal tax and have lower thresholds, so they can explore to smaller estates. The states with these taxes are Connecticut, Delaware, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington, D.C.
An inheritance tax is paid by the person who receives the property — so if you inherit a house in Pennsylvania, you may owe inheritance tax on it. An estate tax is paid by the estate itself before distribution. Some states exempt close relatives (spouses, children, parents) from inheritance tax, while others do not. The rates and thresholds vary widely by state.
If you own property in a state with an inheritance or estate tax but live in a state without one, you may still owe tax to the state where the property is located. This is why it matters to know the rules in every state where you own real estate.
How property title affects what taxes explore
The way property is titled determines whether it passes through probate (the court process that settles an estate) and which taxes explore. Property in a will goes through probate and is subject to both federal and state estate taxes. Property in a revocable living trust also goes through the estate tax calculation, even though it skips probate.
Property with a named beneficiary — such as a house held as "transfer on death" in some states, or a bank account with a payable-on-death designation — passes directly to that person outside of probate. It is still counted toward the federal estate tax threshold, but it avoids probate fees and delays. Property owned jointly with a right of survivorship passes to the surviving owner automatically and is also counted in the estate tax calculation.
Property left to a spouse is exempt from estate tax regardless of how it is titled. The same is true for property left to charity. These exemptions exist at both the federal and state level in most cases.
What happens if an estate owes the tax
If an estate is large enough to owe federal estate tax, the executor must file Form 706 (the federal estate tax return) with the IRS within nine months of the person's death. The executor then pays the tax from estate funds. If the estate does not have enough liquid assets (cash or easily sold investments), the executor may need to sell property, including real estate, to raise the money.
State estate or inheritance taxes follow a similar timeline, though important date vary by state. Some states give executors nine months; others give longer. If the estate misses a important date, penalties and interest accrue. This is why many families work with an estate attorney or tax professional when dealing with large estates.
In some cases, an executor can request an extension or a payment plan if the estate cannot pay when ready. The IRS and state tax agencies have procedures for this, but they require formal requests and documentation.
Planning to reduce or avoid the tax
People with large estates often work with an attorney to structure their property in ways that reduce or eliminate estate taxes. Common strategies include setting up trusts, making gifts during their lifetime (which reduce the estate's value), and using spousal exemptions. Some people also use life insurance trusts or charitable giving strategies.
These planning tools are complex and depend on your specific situation, so they are not something to attempt without professional guidance. An estate attorney or tax professional can review your property, your state's laws, and your goals to suggest options that fit your circumstances.
If you do not have a large estate, you may not need to do any special planning. The federal threshold is high enough that most people's estates pass to their heirs without owing federal tax. However, if you live in a state with an inheritance or estate tax, it is worth understanding the rules even for smaller estates.
Frequently Asked Questions
Is the death tax the same as property tax?
No. Property tax is paid every year by the property owner to the local government. Estate and inheritance taxes are paid once, when the property changes hands after someone dies. They are separate taxes with different rules and rates.
Do I have to pay inheritance tax if I inherit a house from my parent?
It depends on which state the house is in and which state you live in. If the house is in a state with an inheritance tax, you may owe it — though most states exempt close relatives like children from inheritance tax. If the house is in a state without an inheritance tax, you owe nothing to that state. Check the rules in the state where the property is located.
What if my estate is worth less than the federal threshold?
You owe no federal estate tax. Your heirs receive the property without owing federal tax. However, if you live in a state with an inheritance or estate tax, state rules may still explore even to smaller estates, so check your state's threshold.
Can I avoid the death tax by putting property in a trust?
A revocable living trust avoids probate but does not avoid estate tax — the property is still counted toward your taxable estate. An irrevocable trust can reduce estate taxes, but it means you give up control of the property during your lifetime. An attorney can explain which tools fit your situation.
What happens if my estate cannot pay the tax?
The executor can request an extension or a payment plan from the IRS or state tax agency. If neither is granted, the executor may need to sell property to raise the funds. This is one reason why working with a professional is important when an estate is large enough to owe tax.