There are two types of taxes that are potentially levied when someone dies: estate taxes, which are charged against the decedent's assets, and inheritance taxes, which are charged against the heirs who receive the money. The federal government does not have an inheritance tax. The Internal Revenue Service imposes a tax on the decedent's estate -- not on the heirs -- and only if it exceeds a certain amount. With the estate tax exemption over $5 million as of 2014, most estates won't owe any federal estate tax.
State Inheritance Taxes
Video of the Day
Just because you're likely off the hook with Uncle Sam doesn't mean you are home free. As of 2014, Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania and Tennessee impose inheritance taxes. The tax rates vary from state to state, and even within a state, depending on the relationship between the decedent and the heir. For example, if you inherited money from your spouse, you don't owe inheritance taxes in any state.