Inheritance Tax
A tax paid by the person who receives an inheritance, based on the amount they receive. Unlike estate tax (paid by the estate), inheritance tax is paid by the beneficiary. Only six states impose inheritance taxes.
Legal Definition
A tax levied on a beneficiary upon receipt of assets from a decedent's estate, typically calculated on the value of the inheritance received, with rates and exemptions varying by the beneficiary's relationship to the decedent.
Practical Example
In a state with inheritance tax, when Uncle Joe leaves $200,000 to his nephew, the nephew may owe inheritance tax on that amount. If Joe had left it to his spouse instead, it would likely be exempt from inheritance tax.