How to Address Death Taxes in Your Estate Planning

Expert Reviewer: Michelle Owens, JD, CLU, ChFC, CEBS
Manager Advanced Markets, Mutual of Omaha

Summary: Death and taxes are unavoidable, as the saying goes, but in estate planning, they are also inextricably linked. This article explains death taxes, the nuances between estate and inheritance taxes, and how to minimize their impact on you or your loved ones.

Nobody enjoys thinking about taxes, and talking about death doesn’t exactly brighten the mood. But death taxes are a subject worth understanding, especially if you’re thinking ahead for yourself or your loved ones. Whether you’re nearing retirement or helping your aging parents get their affairs in order, understanding death taxes may help save you and your family a lot of money and stress down the road.

What are death taxes?

Death taxes are an umbrella term that generally refers to taxes imposed on the transfer of assets after someone dies. It can include estate taxes and inheritance taxes. Although they are sometimes used interchangeably, these taxes aren’t the same; some people may not have to pay either, while others may have to pay both. If these taxes impact you or your heirs, the cost can be significant. Effective estate planning for retirees requires understanding this difference.

What is the difference between estate and inheritance taxes?

Estate taxes: These are taxes levied on the total value of a person’s estate (or assets) when they die. This includes the money they have in the bank, as well as their real estate holdings, investments, retirement accounts, life insurance or annuity policies, and personal property. Estate taxes are taken before the assets are distributed to beneficiaries.

The federal government levies estate taxes on estates that exceed a certain threshold, no matter the state you live in. Currently in May 2025, that filing threshold is $13.99 million per person¹ and married couples can combine their exemption, making the threshold $27.98 million. Some states also impose estate taxes. Those states include: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington, as well as the District of Columbia. The exemption levels and tax rates for states with estate taxes vary and are generally lower than those of the federal government.²

Inheritance tax: State inheritance tax differs from estate tax because it is imposed on the individual who inherits the assets (i.e., the beneficiary). The inheritance tax rate can vary depending on your relationship to the deceased. For example, if you inherited assets from your mother, the inheritance tax you’ll have to pay may be less than if you inherited assets from your aunt. Spouses are usually exempt.

There is no inheritance tax at the federal level, but a handful of states impose it. Those states are: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.

Who has to pay death taxes?

Most people don’t have to worry about death taxes, especially at the federal level, because the exemption threshold is so high. In 2025, only those with assets over $13.99 million will need to worry about federal estate tax. Unless you have assets of $1 million or more, you also won’t have to worry about state estate taxes.

Inheritance taxes are a different story. The exemption threshold for inheritance taxes is significantly lower in states that levy these taxes. For example, the state of Kentucky taxes anything over $1,000.

How can you avoid death taxes?

If you are subject to death taxes, be it estate or inheritance taxes, there are several estate planning tips and strategies that you can use to help reduce or potentially avoid them. Here are some strategies to consider:

1. Start tax planning early – One of the more overlooked areas of tax planning for retirees is preparing early for the wealth transfer. The earlier you plan, the more options you have.
2. Use the gift tax exemption – You can gift up to a certain amount per person per year without incurring taxes. In 2025, you can gift up to $19,000 per person without having to report it to the IRS and use a portion of your lifetime gift and estate tax exemption or pay gift taxes. Also, if you’re married, you and your spouse can gift up to $38,000 annually to the same person by gift splitting. ³
3. Establish a trust – Trusts can help to shield assets, control how wealth is distributed, and reduce taxable estate value. A common strategy to avoid death taxes is to set up an irrevocable trust.
4. Give to charity – Donations to qualified charities can lower your taxable estate, while also supporting causes you care about.
5. Review your life insurance – Depending on its structure, life insurance may be included in your estate. An irrevocable life insurance trust (ILIT) can keep it out of the taxable asset pool.
6. Consult an estate planning professional – Since tax laws change often. A financial professional can help you develop a personalized estate plan based on your financial situation, goals, and your state’s laws.

Plan today, protect tomorrow

Death taxes can sound intimidating, but they’re really just another piece of the financial puzzle that you need to be aware of. Federal estate taxes won’t affect most people, but state estate and inheritance taxes may be something you need to prepare for.

If you’re ready to take the next step toward securing your future, Mutual of Omaha is here to help. Drawing on decades of experience, our financial professionals can work with your attorney to help with estate and inheritance taxes, wills and trusts, as well as help you develop a holistic financial plan.

FAQs

Q1: Do you have to pay both state estate taxes and inheritance taxes?

Maryland is the only state in the United States where people may be subject to both estate and inheritance tax. In Maryland, the estate may have to pay one tax, while the beneficiaries may also be taxed on the inheritance they receive.

Q2: How soon after death are federal estate taxes due?

The estate tax return is typically due nine months after death. If needed, you can request a six-month extension, provided you do so before the original due date and ensure that the estimated correct amount of tax is paid by that time.

Q3: Can you inherit an IRS tax debt from your parents?

In the U.S., when someone passes away, their debts don’t transfer directly to their heirs. However, if their estate (the money and property they leave behind) has funds, the IRS gets paid first. The IRS can claim estate taxes for up to 10 years from the date the liability is assessed.

Disclosure:

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors.

Sources:

1. Internal Revenue Service, Estate Tax, October 2024
2. Tax Foundation, Estate and Inheritance Tax by State, 2024, November 2024
3. Internal Revenue Service, IRS releases tax inflation adjustments for tax year 2025, October 2024

Expertly Reviewed by: Michelle Owens, JD, CLU^®, ChFC^®, CEBS

Manager Advanced Markets, Mutual of Omaha

With 30 years at Mutual of Omaha, Michelle focuses on training and case consultation with advisors on topics including premium finance, Social Security, retirement income, estate and business planning.

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