Top Federal Estate tax Rate is 40%. 12 states and the District of Columbia impose estate taxes, while five states levy inheritance taxes. Maryland is the only state that imposes both an estate and an inheritance tax.
Estate taxes are paid by a decedent’s estate before assets are distributed to heirs and are thus imposed on the overall value of the estate. They typically fall on the estates of residents who die while domiciled in the taxing state, as well as nonresident decedents who owned taxable property in the state.
Inheritance taxes are remitted by the recipient of a bequest and are thus based on the amount distributed to each beneficiary. They are paid to the state in which the decedent was domiciled or owned taxable property, regardless of the location of the heir.
Most estate and some inheritance taxes are progressive.
All five states with an inheritance tax structure their tax such that the rate varies based on the proximity of the bequest recipient to the decedent. States give preferential treatment, including lower rates and higher exemption thresholds, to close relatives while taxing those further away from the decedent at higher rates and with lower exemption thresholds.