Inheritance & Estate Tax Calculator 2025

Introduction

Most people won't pay federal estate tax—the exemption is $13.61 million (2025), covering 99.9% of estates. But 13 states have estate/inheritance taxes with lower thresholds, and heirs can face unexpected bills.

The Inheritance Tax Calculator determines federal and state tax liability.

Federal Estate Tax

Exemption (2025): $13.61 million per person ($27.22M for couples)

Tax Rate: 40% on amounts above exemption

Example:

• Estate value: $20 million
• Exemption: $13.61M
• Taxable: $6.39M
• Tax: $6.39M × 40% = $2.556M

Sunset Warning: Exemption drops to ~$7M in 2026 unless Congress extends.

State Taxes (13 States Have Them)

Estate Tax States (Tax the Estate)

Low Exemptions (\u003c$2M):

• Oregon: $1M
• Massachusetts: $1M (lowest!)
• Rhode Island: $1.7M

Higher Exemptions:

• NY: $6.94M
• CT: $13.61M (matches federal)
• Washington: $2.2M

Inheritance Tax States (Tax the Heir)

6 States: IA, KY, MD, NE, NJ, PA

Rates: 0-18% depending on relationship

Example (Pennsylvania):

• Spouse: 0%
• Children: 4.5%
• Siblings: 12%
• Unrelated: 15%

Scenario: Inherit $500k from aunt in PA

• Tax: $500k × 15% = $75,000 tax owed

Estate Planning Strategies

1. Spousal Portability

Unused exemption transfers to spouse.

Example:

• Husband dies, estate $8M, exemption $13.61M
• Unused: $5.61M transfers to wife
• Wife's exemption: $13.61M + $5.61M = $19.22M

2. Annual Gifts ($18,000/year, 2025)

Gift $18k/year per person tax-free.

Example:

• Give $18k to each of 4 kids + 4 grandkids = $144k/year
• Over 10 years: $1.44M removed from estate, no tax

3. Irrevocable Life Insurance Trust (ILIT)

Life insurance payouts count toward estate unless in trust.

Strategy: Put $5M policy in ILIT → not counted in estate

4. Charitable Remainder Trust

Leave assets to charity, get income for life.

Benefit: Estate tax deduction + income stream

Step-Up in Basis

Critical Benefit: Inherited assets get "step-up" to fair market value at death (no capital gains tax).

Example:

• Dad bought stock for $10k, now worth $500k
• Dad dies, you inherit
• Your basis: $500k (not $10k)
• Sell immediately: $0 capital gains tax

This is HUGE. Saves $73,500 in taxes (15% × $490k gain).

Common Mistakes

❌ Not Filing Estate Tax Return: Required if estate \u003e exemption, even if no tax owed (for portability) ❌ Forgetting State Taxes: MA/OR estates \u003e$1M face tax even if federally exempt ❌ No Step-Up Planning: Gifting appreciated assets before death loses step-up

FAQ

Q: Do beneficiaries pay tax on inherited IRAs? A: Yes, income tax (not estate tax). Must withdraw over 10 years.

Q: Is life insurance taxable? A: Not for income tax, but counts toward estate tax if you own the policy.

Q: Can I avoid estate tax by gifting everything before death? A: Gifts \u003e$18k/year count toward lifetime exemption ($13.61M). Can't escape entirely.

Related Calculators

• Net Worth: /calculator/112-net-worth-growth-calculator-2025
• Life Insurance: /calculator/132-life-insurance-needs-calculator-2025

Conclusion

Most people won't face federal estate tax, but state taxes can surprise you. If your estate is approaching $1M+ and you live in MA, OR, or another low-exemption state, plan accordingly.

Use the Inheritance Tax Calculator to estimate liability and consult an estate attorney for trusts, gifting strategies, and tax minimization.