Only six U.S. states still impose an inheritance tax, but if your family lives in one of them, siblings could lose up to 16% of their inheritance in taxes. That could mean tens of thousands of dollars at stake for you and your brother or sister. Yes, inheritance tax can be split between siblings, but it depends on state laws and how the estate is structured. Knowing the rules can make the difference between a fair split and an expensive surprise.
- 💰 Which states will tax your inheritance (and which won’t): Learn where siblings are on the hook for inheritance tax and where you can inherit tax-free.
- ⚖️ Estate tax vs. inheritance tax demystified: Understand the key differences and why federal law treats siblings’ inheritance differently from state laws.
- 🏠Splitting a house or assets between siblings: Find out how executors, probate courts, and trusts handle taxes when siblings co-inherit property.
- đź“‘ Legal tools to minimize the tax bite: See how wills, trusts, and even IRS forms can be used to reduce or fairly distribute tax burdens among siblings.
- 🤝 Real-world examples & quick tips: Walk through scenarios of siblings inheriting in different states, with practical tips to avoid conflicts and costly mistakes.
What Is an Inheritance Tax, and Who Actually Pays It?
An inheritance tax is a state-level tax on the beneficiaries who receive an inheritance. Unlike an estate tax (which is taken out of the deceased’s estate before distribution), an inheritance tax is charged after assets pass to heirs. In simple terms, an estate tax comes off the top of the overall estate, while an inheritance tax comes out of each person’s share.
Federal vs. State: There is no federal inheritance tax in the United States; the IRS doesn’t tax individuals just for inheriting money or property. However, the IRS does impose a federal estate tax on very large estates (over $13 million per individual as of 2025). That estate tax is paid by the estate itself – meaning siblings inheriting from a very wealthy parent might indirectly “share” that tax because it reduces what’s left to split. When it comes to inheritance tax, though, it’s entirely a creation of state laws, and it’s the heirs (like you and your siblings) who may be responsible for paying it.
Who pays what: In states with an inheritance tax, each beneficiary’s tax bill depends on their relationship to the deceased and the amount they inherit. For example, a state might exempt immediate family like spouses or children, but charge a percentage on transfers to siblings. If two siblings each inherit $50,000 in such a state, each sibling would separately owe tax on their $50,000 share. In that sense, the tax is essentially split between them – one isn’t stuck paying it all; each pays their own portion.
Estate structure matters: The way the estate is structured can affect how these taxes are handled – a will or trust might specify whether taxes are paid out of the estate (before distribution) or charged to each beneficiary. In some instances, the executor might use estate funds to pay everyone’s inheritance tax upfront, effectively reducing each sibling’s share rather than sending each a tax bill. In other situations, each sibling receives their full inheritance and then is responsible for paying any required tax to the state. Bottom line: Inheritance tax can be divided among siblings by default, but the specifics hinge on state law and the estate plan.
(Notably, the federal estate tax exemption is very high – about $13 million per person in 2025 – and is scheduled to drop to roughly $7 million in 2026, potentially exposing more estates (and indirectly siblings’ inheritances) to estate tax.)
Which States Have Inheritance Taxes, and How Do They Treat Siblings?
Not all states tax inheritances – in fact, most don’t. But six states (as of 2025) have an inheritance tax on the books. Each state’s rules are a little different, especially when it comes to whether siblings must pay. Let’s break down each of these states and what a sibling inheriting might face:
Pennsylvania: Do Siblings Pay a 12% Inheritance Tax?
Pennsylvania is known for its inheritance tax, which applies to almost all inheritances unless you’re a charity or a spouse. In Pennsylvania, siblings are taxed at a flat 12% rate on whatever they inherit from a decedent (with very few exceptions). There’s no large exemption amount – even the first dollar inherited by a sibling can be taxed. For example, if a sister in Pennsylvania inherits $100,000 from her brother’s estate, she would owe about $12,000 in inheritance tax to the state.
The executor of the estate typically files a Pennsylvania inheritance tax return and can pay the tax out of the estate before distributing funds. Pennsylvania law even offers a small discount (5%) if the tax is paid within three months of death, as an incentive for quick payment. Siblings inheriting in Pennsylvania should be prepared for this tax bite – it’s essentially automatically split, since each sibling pays 12% of their own portion.
New Jersey: Do Siblings Face Inheritance Tax (After a $25,000 Exemption)?
New Jersey eliminated its estate tax in 2018, but it still has a quirky inheritance tax system. In New Jersey, siblings are classified as “Class C” beneficiaries. The good news is the first $25,000 that a sibling inherits is exempt from NJ inheritance tax. After that, the rates kick in on a sliding scale – 11% on amounts above $25,000 up to $1.1 million, then 13% on the next portion, and up to 16% on anything over $1.7 million.
For example, if you inherit $100,000 from a sibling in New Jersey, the first $25,000 is tax-free and the remaining $75,000 is taxed at 11% – about $8,250 in tax. As with Pennsylvania, the executor will typically handle filing the inheritance tax return and can pay the tax out of the estate before you receive your net share. One quirk: life insurance payouts to a named beneficiary are exempt from New Jersey inheritance tax, so if your sibling left you a life insurance benefit, New Jersey wouldn’t tax that portion at all.
Nebraska: Do Siblings Have to Pay Nebraska’s Inheritance Tax?
Nebraska is one of the few places where counties impose the inheritance tax. The rate depends on your relationship to the deceased. Immediate relatives (which include siblings, parents, children, grandparents, etc.) each get a $100,000 exemption and then pay just 1% on the amount above that. That means if a brother leaves his sister $120,000, the first $100,000 is tax-free and the remaining $20,000 is taxed at 1% – only $200 due. Even a much larger inheritance has a relatively small tax: for instance, if a sibling inherits $1,000,000, they would owe roughly $9,000 (1% of $900,000) to the county after the exemption.
More distant relatives (like nieces and nephews) pay 11% after a $40,000 exemption, and non-relatives pay 15% after only $25,000 exempt. The executor works with the county to determine the tax due and ensure each beneficiary’s portion covers their share. Siblings in Nebraska do technically face an inheritance tax, but thanks to the generous exemption and tiny rate, it’s rarely a heavy burden (lawmakers have even discussed eliminating this tax in recent years).
Iowa: Did Iowa Have an Inheritance Tax for Siblings (and What Changed)?
Iowa historically levied an inheritance tax, but great news: Iowa has repealed its inheritance tax as of January 1, 2025. Before repeal, Iowa did tax siblings and other non-lineal heirs at rates that could reach around 5% to 10%, with certain exemptions. The state gradually reduced the tax by 20% per year starting in 2021, and for anyone who dies in 2025 or later, Iowa imposes no inheritance tax at all. That means if your relative passed away in 2025 in Iowa, you and your siblings inherit without owing the state a dime in inheritance tax.
If the death occurred in 2024 or earlier, some inheritance tax still applied under the old rules (albeit reduced in the final phase-out years). Iowa’s repeal was part of a tax reform aimed at keeping retirees and family businesses in the state. Now siblings inheriting in Iowa only have to consider federal estate tax (if the estate is huge) or income tax on certain assets (like inherited IRAs), but not any state inheritance tax.
Kentucky: Are Siblings Exempt from Kentucky’s Inheritance Tax?
Kentucky is one of the states that still has an inheritance tax, but siblings are completely exempt. Kentucky classifies beneficiaries into three groups, and Class A – which includes the deceased’s spouse, children, grandchildren, parents, and siblings (including half-siblings) – pays no inheritance tax at all. So if your brother in Kentucky leaves you $500,000, the state will not charge you any inheritance tax on that amount.
Classes B and C (more distant relatives like nieces, in-laws, or cousins, and unrelated individuals) do face Kentucky’s inheritance tax, at rates up to 16% after only a small exemption. But as a sibling in Class A, you won’t owe a penny. In short, while Kentucky has an inheritance tax on the books, it doesn’t affect siblings – you and your siblings can share inherited assets freely, without any state tax slicing into your portions.
Maryland: The Only State with Both Estate and Inheritance Tax – But Not for Siblings
Maryland stands out because it imposes both a state estate tax and a state inheritance tax. However, Maryland’s inheritance tax (a flat 10% on transfers) does not apply to close family members, and that includes siblings (since 2000). If a Maryland resident leaves a bequest to a sibling, there is 0% inheritance tax due – the sibling pays nothing to the state for that inheritance. It’s only more distant beneficiaries (like a niece, nephew, friend, or non-family member) who pay Maryland’s 10% inheritance tax.
The catch in Maryland is the estate tax – currently, estates over $5 million may owe Maryland estate tax (with graduated rates up to 16%). If the estate is large enough to trigger that tax, the estate itself must pay it before assets are distributed to the heirs. Siblings inheriting from a wealthy Maryland estate might thus get a reduced amount due to the estate tax, but they still owe no inheritance tax on what they receive. For example, if two brothers inherit a $6 million estate in Maryland, the estate would pay tax on the portion above $5 million, and the brothers would split the remaining assets with no 10% inheritance tax on their shares.
What About States with No Inheritance Tax?
If a state isn’t listed above, good news – it doesn’t have an inheritance tax. The vast majority of U.S. states, including big ones like California, Texas, Florida, New York, and others, do not charge any tax to individuals just for inheriting. That means if you and your siblings inherit a house in a state like California or Florida, neither the state nor the IRS is going to demand an “inheritance tax” payment. You can split the assets according to the will or state law without worrying about a state inheritance tax bill.
Do keep in mind that a few of these states do have state estate taxes that might affect very large inheritances. For instance, New York has an estate tax if the estate exceeds roughly $6–7 million, Illinois and Massachusetts tax estates over $4 million, Oregon and Washington have their own estate tax systems, etc. Those taxes are paid by the estate itself, not by individual siblings, and only if the estate’s value crosses the state’s threshold. To illustrate: imagine two sisters inheriting their parent’s $10 million estate in New York. New York might impose around $1 million in estate tax on that estate (since it’s above the state’s exemption). The estate would pay that $1 million, and the sisters would then split the remaining $9 million – neither has to pay a separate tax on her share. In a state like Florida, with no estate or inheritance tax, the same $10 million inheritance would have no state tax at all, so the siblings would receive everything (aside from any federal estate tax if the estate was extremely large).
Quick Comparison – Siblings’ Inheritance Tax in Different States:
| Scenario | Inheritance Tax Outcome |
|---|---|
| Two brothers inherit $500,000 from their sister’s estate in Pennsylvania (50/50 split) | Each brother owes 12% on his $250,000 share (about $30,000 each to PA). They receive the remainder after the tax is paid. |
| Two siblings inherit a $2 million estate in New Jersey (each receives $1 million) | Each sibling’s first $25,000 is exempt. The rest is taxed at 11–16%, roughly $110,000 in tax each. They end up with about $890,000 each after state tax. |
| One sister inherits $50,000 from her brother in Kentucky | No inheritance tax – siblings are exempt in Kentucky. She keeps the full $50,000. |
| Three siblings jointly inherit a $900,000 house in California | No state inheritance tax (California has none). They can split or sell the property without any state “death” tax. |
How Can Siblings Manage or Reduce Inheritance Taxes on Their Share?
If you discover that you and your siblings will owe inheritance tax, don’t panic – there are ways to manage the burden and sometimes even reduce it. Here are several strategies and considerations:
- Work with the Executor: The estate’s executor (personal representative) is key. They are responsible for filing any required inheritance tax returns and estate tax returns. In practice, the executor will often calculate each person’s share of tax and pay it directly from the estate’s funds before distributing assets. Make sure you communicate with the executor about how taxes are being handled. If you’re a sibling and the executor, be mindful to file the necessary forms (like a state inheritance tax return or the federal Form 706 for a taxable estate) on time to avoid penalties.
- Use Estate Funds vs. Out-of-Pocket: Decide whether the tax gets paid out of the estate as a whole or individually by each sibling. Often, the inheritance tax is paid from the estate before splitting assets – this way, siblings receive their inheritance net of tax and don’t have to worry about writing checks later. Alternatively, the executor might distribute assets and then each sibling is responsible for sending their share of tax to the state by the deadline. Clarify this upfront to avoid surprises. No one wants to spend their entire inheritance and later find out a tax bill is due.
- Plan Ahead with Trusts and Ownership Structure: If you’re looking at this issue before the person passes (say, helping a parent plan their estate for you and your siblings), consider moves that can minimize taxes. In states like Pennsylvania or New Jersey, one option is leveraging life insurance – life insurance proceeds payable to a named beneficiary are typically exempt from inheritance tax. For example, a parent could leave a life insurance payout to the children or siblings, providing a tax-free inheritance. Another strategy is using trusts to control distribution. A revocable living trust won’t avoid the tax itself, but it can make the process smoother. In some cases, people make lifetime gifts to siblings to reduce what will be in the estate – but beware of state “look-back” rules. (Pennsylvania, for instance, will still tax gifts made within one year of death as part of the inheritance tax, except for the first $3,000.) Always check your state’s rules or consult an attorney before trying to gift assets to dodge taxes.
- Consider Disclaimers (Carefully): A qualified disclaimer means you legally refuse an inheritance so it passes to the next beneficiary in line, as if you had predeceased. In rare cases, a sibling might disclaim an inheritance to let it go to someone who would owe no tax (for example, to a charity, or to a parent who would be taxed at a lower rate). This can save tax, but it’s tricky. The disclaimer must be done in writing within 9 months of death, and you can’t direct who gets the asset next – it follows the will or intestacy. Also, if the next in line is another sibling or relative in the same tax class, no tax is saved by disclaiming. Use this strategy only with professional guidance, as it can have unintended consequences.
- Joint Ownership and Other Titling Strategies: Some families pre-arrange asset ownership to lessen taxes. For instance, adding siblings as joint owners on bank accounts or property can mean that when one dies, the asset passes directly to the survivor. In many states, jointly held property between non-spouses is taxed only partially (typically the decedent’s portion). Example: if you and your sister owned a house jointly with rights of survivorship, when one of you dies, the survivor automatically owns the house, and the state might tax only the decedent’s half. This can reduce inheritance tax compared to leaving the entire house through a will. Caution: Adding someone as a joint owner can itself be considered a gift, and it exposes the asset to the co-owner’s creditors during life. Plus, some states will still assume the decedent owned 100% of a jointly held asset unless you prove otherwise. So, while joint titling can help in certain scenarios, do it with a clear understanding of the rules.
- Life Insurance to Cover Taxes: If a big tax bill is anticipated (especially with large estates), families often purchase life insurance to cover it. The death benefit provides tax-free cash that can be used to pay estate or inheritance taxes. Some set up Irrevocable Life Insurance Trusts (ILITs) so that the insurance payout isn’t counted in the taxable estate. The idea is that when the person dies, the insurance proceeds go to the trust or designated beneficiaries (e.g., the children), and can be used to pay any taxes due, allowing siblings to keep inherited assets (like a family business or real estate) without selling them. This is more of a general estate-planning tool, but it can directly benefit siblings by ensuring the liquidity to pay taxes without drama.
- Stay Organized and Meet Deadlines: Inheritance taxes are typically due within about 6–9 months after death (exact timing varies by state, mirroring the federal estate tax timeline of 9 months). Many states grant a discount for early payment (as noted, Pennsylvania knocks off 5% for payments within 3 months). As siblings, coordinate quickly on tax matters. If the estate includes illiquid assets (like property or a business), you might need to arrange a payment plan or loan to pay the tax on time. Missing the deadline can mean interest and penalties, which just eat into the estate further. Also, remember that states may place a lien on real estate for any inheritance tax due – you generally can’t sell or fully transfer an inherited house until the tax is paid. Being proactive – getting appraisals, filing the returns, and paying the tax promptly – will save money and prevent family headaches.
- Consult Professionals: Every family situation is different. An experienced estate attorney or tax advisor can spot opportunities and pitfalls. They might suggest special elections or valuations (for example, a Section 6166 deferral for estate tax if a business is involved, or a special use valuation for a farm). They’ll also ensure compliance with state-specific procedures, like obtaining those tax clearance waivers in states that require them. Professional guidance is especially valuable if an estate is close to a taxable threshold or if siblings are inheriting complex assets. It can help you minimize taxes within the bounds of the law and ensure that the tax burden is shared equitably.
In short, while siblings can’t magically erase an inheritance tax unless the law provides an exemption, they can plan ahead and cooperate to make sure the tax is handled fairly and efficiently. Using estate funds to pay the tax, leveraging life insurance and smart estate planning, and paying attention to deadlines can significantly ease the process. The result: you and your siblings can focus more on the legacy you’ve received and less on what you owe the taxman.
Pros and Cons of Splitting Inheritance Tax Among Siblings
| Pros (of inheritance tax being divided per sibling) | Cons |
|---|---|
| Each sibling only pays tax on their share, which feels fair – no one ends up covering the tax for someone else’s inheritance. | It can be confusing or burdensome for each sibling to handle tax paperwork and payments individually, especially during a difficult time. |
| The tax burden is proportional to what each person receives. A sibling who inherits more will pay more tax, while one who inherits less pays less. | Inheritance tax reduces the amount each sibling actually receives. This can come as an unpleasant surprise if a sibling wasn’t expecting the deduction from their share. |
| If the estate covers the tax before distribution, it simplifies things – siblings get their inheritance after taxes and don’t need to worry about coming up with cash for a tax bill. | Paying inheritance tax (either out of the estate or individually) can cut into funds that siblings might have planned to invest or use immediately, affecting their financial plans. |
| Some states give siblings favorable treatment (large exemptions or low rates), so the split tax ends up minimal or nil for them. | State inheritance tax laws vary widely, which can be hard to navigate – if siblings live in different states than the decedent, they might not realize a tax from the decedent’s state applies to them. |
Frequently Asked Questions about Siblings and Inheritance Tax
Q: Do siblings have to pay inheritance tax?
A: No. The vast majority of U.S. states (and the federal government) do not charge any inheritance tax to siblings. Only a few states do, and only on the portion each sibling inherits.
Q: Is an inheritance from my sibling considered taxable income?
A: No. Inherited money or property isn’t counted as income on your federal or state income tax return. You don’t pay income tax on inheritance – inheritance tax (if any) is a separate state-level tax.
Q: Does the IRS tax siblings who inherit money or property?
A: No. The IRS doesn’t impose an inheritance tax. It only levies estate tax on very large estates (which the estate itself pays). Siblings inheriting below the federal estate tax threshold owe nothing to the IRS.
Q: Do any states impose inheritance tax on siblings?
A: Yes. Six states do (Pennsylvania, New Jersey, Nebraska, Iowa (until 2025), Kentucky, and Maryland), though in Kentucky and Maryland siblings are actually exempt. The others tax siblings’ shares at varying rates.
Q: If I live in a different state than my deceased sibling, do I pay inheritance tax?
A: Yes (if applicable). What matters is the law where the decedent lived (or where their property is located). If your sibling lived in a state with inheritance tax, it applies to your inheritance even if you live elsewhere.
Q: Will the executor handle the inheritance tax for us siblings?
A: Yes. In most cases, the executor calculates and pays any state inheritance tax from the estate before distributing assets. You as a beneficiary typically don’t have to file tax forms or pay the state directly.
Q: Can we avoid inheritance tax by sharing the inheritance differently?
A: No. The tax is based on each person’s relationship to the deceased and the amount they receive. Changing how you split the assets among yourselves doesn’t eliminate the tax (and could trigger gift tax filings if large).
Q: Do siblings pay capital gains tax on inherited property?
A: No (not initially). Inherited property gets a stepped-up basis, so selling it right away usually incurs no capital gains tax. You’ll owe tax only on value growth after you inherited it (if you sell later).
Q: Are half-siblings or step-siblings treated the same for inheritance tax?
A: Yes. Generally, state laws that tax siblings include half-siblings equally. Step-siblings might not always count as “siblings” under certain laws – it varies by state, but most inheritance tax laws focus on blood or adopted relatives.
Q: Should siblings split an inheritance 50/50 to minimize taxes?
A: No. How you split the inheritance doesn’t change the tax rate. The tax (if any) is applied per beneficiary on what they receive. It’s best to split assets as intended; taxes will follow according to each share.