The death benefit from an insurance policy is not subject to inheritance taxes. Whether or not a beneficiary will pay tax on the assets depends on whether the decedent lived in one of the six states that have this type of tax. The offers that appear in this table are from partnerships from which Investopedia receives compensation. The IRS allows taxpayers to give as much as $12.06 million during their lifetime. 5 Avoid inheritance tax on property. Different types of assets such as life insurance policies, cash, and investment assets can be put into trust. Generation-skipping transfer tax is a federal tax on a transfer of property by gift or inheritance to a beneficiary that meets certain requirements. Such trusts are considered accidental loopholes as they are used largely for transferring assets to beneficiaries without paying gift or state inheritance taxes. Key Takeaways. The most common inheritance is between $10,000 and $50,000. To keep these costs low, try to use an attorney who does not charge by the hour and find an executor who is willing to work for a percentage of the estate. The way that the tax is calculated depends on the state in which you reside. Note that historical rates and tax laws may differ. Luckily no, tax is only paid in six states that impose inheritance taxation and the amount ranges between 0% and 18%. "States With an Inheritance Tax.". In 2022, this increases to $16,000. This compensation may impact how and where listings appear. If a person inherits an estate large enough to trigger the federal estate tax, the decedent lived or owned property in a state with an inheritance tax, and the bequest is not fully exempt under that state's law, the beneficiary facesthe federal estate tax as well as a state inheritance tax. However, some states have a delayed payment option. The IRS offers an estate tax exemption. Life insurance is a great way to pass on larger sums of money to your heirs as the proceeds of income tax are free. Any amount over the $11.7 million, however, is taxable. Do Beneficiaries Have to Pay Tax on Inheritance Each individual is entitled to a one gift allowance per year or annual exemption. It depends on their familial relationship to the deceased and on the state where the decedent lived or owned property. Spouses are always exempted, and immediate family memberschildren, parentsoften are as well. Siblings, grandchildren, and grandparents, if they're taxed at all, receive more generous terms (larger exemptions, lower rates). In Maryland, inheritances from estates smaller than $50,000 are also exempt. Some state estate tax exemptions may be as low as $1 million.