Most families assume crossing a state line has nothing to do with inheritance taxes, but for heirs in certain states, one ZIP code difference can mean the difference between a five-figure bill and nothing at all.<\/p>\n
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If your parent lives in Pennsylvania, New Jersey, Kentucky, Maryland, or Nebraska, the state can take a cut of what you inherit. Pennsylvania stands out as the harshest for one specific reason. It taxes a child\u2019s inheritance starting from the very first dollar, with no exemption, no threshold, and no cushion to soften the hit. Meanwhile, a parent who dies just one state line away in places like Ohio, West Virginia, or Delaware triggers a state inheritance tax<\/a> bill of exactly zero. That quiet quirk in state inheritance tax law catches nearly every family that hasn\u2019t planned for it.<\/p>\n What an Inheritance Tax Actually Is<\/p>\n An inheritance tax is levied on the person receiving assets<\/a>, and the rate depends on that person\u2019s relationship to the deceased. That is different from an estate tax, which is charged to the estate itself based on its total size before anything is distributed. The federal government only levies an estate tax, and thanks to the One Big Beautiful Bill Act<\/a>, the federal exemption is $15 million per individual in 2026, so almost no one pays it. State inheritance taxes are a separate animal, and the exemptions are far lower.<\/p>\n Real Count: Five States, Down From Six<\/p>\n Iowa completed its full phase-out of the inheritance tax effective January 1, 2025, leaving five states that still impose one: Pennsylvania, New Jersey, Kentucky, Maryland, and Nebraska. Maryland is the only state that levies both an inheritance tax and an estate tax.<\/p>\n Who Actually Pays: Relationship Matters More Than Dollars<\/p>\n Here is the correction that almost every headline gets wrong. In most of these states, children pay nothing. The tax hits siblings, nieces, nephews, and unrelated heirs. Spouses are exempt everywhere.<\/p>\n State Pennsylvania New Jersey Kentucky Maryland Nebraska Kentucky exempts Class A entirely (spouse, parents, children, grandchildren, siblings). Maryland exempts all lineal descendants and siblings. Nebraska reduced its rates under LB 310, effective 2023. Pennsylvania is the outlier that reaches children directly.<\/p>\n Why Pennsylvania Is the Headline<\/p>\n Pennsylvania charges 4.5% on transfers to lineal descendants like children, grandchildren, and parents, with no built-in exemption. So, on a $500,000 inheritance to a child, you are looking at a real bill in the low five figures owed to Harrisburg. Move that same parent\u2019s legal residence across the border to Ohio or Delaware, and the exact same transfer to the same child costs nothing at the state level.<\/p>\n Domicile Trap Everyone Falls Into<\/p>\n Inheritance tax follows the decedent\u2019s domicile, not the heir\u2019s. Telling your kids to move to Florida does nothing. The parent has to change domicile, and domicile means more than owning a second home. States look at where you vote, where your driver\u2019s license is issued, where you file resident income taxes, where your primary physician is, and where you actually spend your nights. Real estate physically located in the taxing state remains subject to that state\u2019s inheritance tax regardless of where the owner moved.<\/p>\n Planning Levers Worth Knowing<\/p>\n Lifetime gifting. Pennsylvania has a one-year lookback: gifts within a year of death are pulled back into the taxable estate. New Jersey has a three-year presumption. Plan Ahead of the Move<\/p>\n This tax is decided by the parent\u2019s state of residence and the location of their real property. Review it well before any planned move, and check beneficiary forms, titling, and trust language while you are at it (we put the full estate cleanup checklist in a free guide here<\/a>). State legislatures adjust these rules often, so confirm current rates with a local estate attorney before signing anything.<\/p>\n
\nSpouse
\nChild
\nSibling
\nUnrelated<\/p>\n
\n0%
\n4.5% from $1
\n12%
\n15%<\/p>\n
\n0%
\n0% (Class A)
\n11%\u201316% over $25,000
\n15%\u201316%<\/p>\n
\n0%
\n0% (Class A)
\n0% (Class A)
\nup to 16%<\/p>\n
\n0%
\n0%
\n0%
\n10%<\/p>\n
\n0%
\n1% over $100,000
\n1% over $100,000
\n15% over $25,000<\/p>\n
\nLife insurance. Proceeds paid to a named beneficiary are exempt in Pennsylvania and New Jersey. This is one of the cleanest workarounds.
\nRetirement accounts. Treatment varies. Pennsylvania exempts most IRAs and 401(k)s if the decedent died before age 59\u00bd.
\nPayable-on-death and joint accounts. Generally still taxable, but titling can affect timing and whose return reports it.
\nTrusts. Useful for federal estate planning, but does not eliminate state inheritance tax on assets sourced to the taxing state.
\nThe early-pay discount. Pennsylvania grants a 5% discount on inheritance tax paid within three months of death. Almost no one uses it.<\/p>\n