Estate Planning

Inheritance Tax and Estate Tax Are Not the Same Thing

Most people use the terms interchangeably. They are not the same tax. They are not imposed by the same government. Whether you owe one has nothing to do with whether you owe the other. Confusing them leads to real planning mistakes, and to clients who think they are protected when they are not, or who think they have a problem they do not actually have.

This matters in Pennsylvania because we have one and not the other. It matters even more if you own property in multiple states, because your neighbors in that regard may not be so fortunate. For broader estate planning context, see our overview of wills, estates, and trusts in Pennsylvania.

The Basic Distinction

Inheritance tax is imposed on the person who receives assets from a deceased person. The rate depends on the relationship between the deceased and the recipient. Pennsylvania imposes inheritance tax. So do Iowa, Kentucky, Maryland, Nebraska, and New Jersey. Six states total. No other states have it.

Estate tax is imposed on the estate itself before anything is distributed. It is calculated on the total value of what the deceased person owned. The federal government imposes an estate tax. So do twelve states and the District of Columbia.

Pennsylvania has inheritance tax but no estate tax. The federal government has estate tax but no inheritance tax. Maryland has both. A beneficiary receiving assets from a Maryland estate may also face Pennsylvania inheritance tax when those assets arrive here. That is not a hypothetical. It is a situation that comes up.

Federal Estate Tax: Who Actually Pays It

The federal estate tax has an exemption high enough that most families never touch it. For 2026, the exemption is $15 million per individual and $30 million for a married couple using portability. Estates below that threshold owe nothing in federal estate tax. The rate above the exemption is 40 percent.

For the vast majority of Pittsburgh families, federal estate tax is not the immediate concern.

The One Big Beautiful Bill Act, signed on July 4, 2025, permanently raised the federal estate and gift tax exemption and repealed the sunset provision that had been scheduled to cut it roughly in half at the end of 2025. The exemption is now indexed for inflation going forward. The “use it or lose it” urgency that dominated planning conversations in 2024 and early 2025 is behind us.

That said, future legislation could always reduce the exemption. Families with substantial estates should not treat the current levels as permanent. The conversation has shifted from emergency action to long-term strategy, but it has not gone away.

State Estate Taxes: The Problem Most People Do Not Know They Have

Twelve states and the District of Columbia impose their own estate tax, separate from the federal tax, with their own exemptions and rates. Those exemptions are considerably lower than the federal number.

Oregon and Massachusetts tax estates above $1 million. Washington State taxes above roughly $2.2 million. Maryland sits at $5 million. Illinois at $4 million. The rates vary, but they are real, and they apply based on where the deceased person lived or owned property. Not necessarily where the heirs live.

If a Pittsburgh client owns a vacation home in a state with an estate tax, that property may be subject to that state’s tax regardless of where the owner lived. Real estate is taxed where it sits. A Pennsylvania resident who owned a cabin in Washington State and a condo in Oregon could face estate tax in two states plus the federal calculation, all on the same death. That is before Pennsylvania inheritance tax touches the assets when they reach the beneficiaries.

This is not common, but it is not rare either. Families with property in multiple states need to understand what they are walking into.

Maryland Specifically

Maryland comes up for Pittsburgh-area families more often than most states. Maryland has both an estate tax and an inheritance tax. It is one of only two states that still have both. The Maryland estate tax exemption is $5 million. The Maryland inheritance tax rate is 10 percent on assets passing to most beneficiaries, with exemptions for direct descendants and spouses.

A Pittsburgh family that inherits property or assets from a Maryland estate, or that owns Maryland real estate, may be dealing with Maryland estate tax at the estate level, Maryland inheritance tax as recipients, and Pennsylvania inheritance tax when the assets arrive. Understanding the full tax exposure requires looking at all three together.

Pennsylvania Inheritance Tax: The One That Actually Hits Most Families Here

Pennsylvania inheritance tax applies to most estates regardless of size. There is no exemption based on the value of the estate. The rates range from zero for a surviving spouse to 4.5 percent for direct descendants, 12 percent for siblings, and 15 percent for everyone else.

The details on Pennsylvania inheritance tax are covered in our article on Pennsylvania Inheritance Tax: What Pittsburgh Families Need to Know. The short version is that this is the tax that actually affects the majority of Pittsburgh families.

Why the Confusion Matters for Planning

Estate planning documents designed around federal estate tax concerns do not automatically address Pennsylvania inheritance tax. Sometimes they work against each other.

A revocable living trust preserves the stepped-up basis at death and simplifies administration. It does nothing to reduce Pennsylvania inheritance tax, because the assets are still owned by the individual for tax purposes.

An irrevocable trust may remove assets from both the Pennsylvania inheritance tax base and federal estate tax calculations, but it may affect the stepped-up basis depending on how it is structured.

Gifting appreciated assets during life avoids Pennsylvania inheritance tax on those assets, but it eliminates the stepped-up basis the heirs would have received at death. That can cost them more in capital gains tax when they sell than the inheritance tax would have cost.

None of these are reasons to avoid planning. They are reasons to plan carefully, with someone who understands how the pieces interact.

What Executors Should Know

If you are administering a Pennsylvania estate, your primary tax obligation is the Pennsylvania inheritance tax return. It is due nine months after death, with a 5 percent discount available if paid within three months. Federal estate tax is unlikely to apply unless the estate exceeds the $15 million exemption.

If the deceased owned out-of-state property, determine immediately whether that state has an estate tax and whether a return is required there. Missing a filing obligation in another state can create personal liability for the executor.

The Practical Takeaway

Most Pittsburgh families dealing with estate planning or estate administration are thinking about the wrong tax. Federal estate tax receives the attention. Pennsylvania inheritance tax is the one that actually applies.

And if there is out-of-state property involved, particularly in Maryland, New Jersey, or any state with a low estate tax exemption, the picture becomes more complicated quickly.

The planning conversation should start with what you own, where you own it, and who you intend to leave it to. The tax analysis follows from those facts.

Most Pittsburgh Families Are Planning Around the Wrong Tax.

Federal estate tax gets the headlines. Pennsylvania inheritance tax is the one that actually applies. If you own property in multiple states or are planning around a large estate, these taxes should be addressed together.

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This article is for general informational purposes and does not constitute legal advice. Tax law is subject to change. Contact our office to discuss your specific situation.