Estate, Inheritance, and Gift Taxes Can Be Minimized—If You Plan Ahead

If you’ve spent your life building a real estate portfolio, you’re probably aware of the realities of paying property taxes in various locations. However, you may not have considered the taxes your heirs could pay on these properties—and not just estate tax. While estate, inheritance, and gift taxes are often discussed together, it’s crucial to understand how each one applies to you.

[TABLE OF CONTENTS]

• Estate, Inheritance, and Gift Taxes: What’s the Difference?
• Does Florida Have Inheritance Taxes?
• Which States Have Inheritance Tax?
• Strategic Gifting as Inheritance Tax Planning
• How to Reduce the Impact of Estate, Inheritance and Gift Taxes
• Speak to an Estate Planning Attorney About Inheritance and Gift Taxes

Estate, Inheritance, and Gift Taxes: What’s the Difference?

Estate Tax is imposed on the total value of a deceased person’s property before the assets are distributed to heirs. The federal government imposes an estate tax, but only on estates that exceed a certain threshold (which, as of 2025, is $13.99 million). Some states also impose their own estate taxes. The tax is paid using assets from the estate.

Inheritance Tax applies to beneficiaries who inherit property or assets from someone who has died. Inheritance taxes are based on the value of the inheritance received by the beneficiary, not the full value of the estate. This tax exists only at the state level; no federal inheritance tax exists. The beneficiary pays this tax, and the rate varies by their relationship to the deceased.

Gift Tax is incurred when someone gives property or money to another person during their lifetime. There are annual exclusions for gifts (in 2025, it’s $19,000 per person) and a lifetime exemption. However, if someone exceeds these limits, the giver may be liable for federal gift taxes.

Does Florida Have Inheritance Taxes?

Only six states have an inheritance tax; fortunately, Florida isn’t one of them. The Florida Constitution has outlawed income tax, inheritance tax, and gift taxes, making our state a prime location for retirees to own property they will eventually pass on to their children.

However, inheritance tax doesn’t just apply to the state you live in—it applies to assets located in the state that imposes the tax. If you own a rental property, commercial real estate, or land in one of the states below, your heirs could be stuck paying a high tax bill after you’re gone.

Which States Have Inheritance Tax?

Iowa (2024 Taxes and Earlier)

• Exempt: Close relatives (spouse, children, stepchildren, grandchildren, great-grandchildren, and adopted descendants) are not subject to tax.
• Taxable: Applies to both real and personal property IF the value of the deceased’s estate is valued at more than $25,000.
• Rate: 0% to 2%
• NOTE: Iowa no longer imposes inheritance tax on deaths after January 1, 2025.

Kentucky

• Exempt: A spouse, parents, children, grandchildren, siblings, and half-siblings.
• Taxable: Tangible and intangible property
• Rate: 4% to 16%
• NOTE: Kentucky is one of the few states where an inheritance tax can be imposed on smaller estates.

Maryland

• Exempt: Direct descendants (children, spouse, parents) are generally exempt from inheritance tax. Other relatives may be taxed at a lower rate.
• Taxable: Real estate and personal property worth $1,000 or more. 
• Rate: 1% to 10%
• NOTE: Maryland is the only state to impose both an estate tax and an inheritance tax.

Nebraska

• Exempt: A surviving spouse and certain descendants below the age of 22
• Taxable: Real estate and personal property
• Rate: 1% to 15%
• NOTE: Nebraska has a progressive tax structure, meaning the more distant the heir is from the decedent, the higher the tax rate.

New Jersey

• Exempt: Spouses, children, and parents. Siblings, nieces, nephews, and non-relatives face higher tax rates.
• Taxable: Tangible and intangible assets
• Rate: 11% to 16%
• NOTE: Certain close relatives may be exempt from taxes on up to $25,000 of inherited assets.

Pennsylvania

• Exempt: Spouses and children under 21.
• Taxable: Real and personal property
• Rate: 4.5% to 16%
• NOTE: Pennsylvania has some of the highest inheritance tax rates for non-immediate family members, which can impact distant relatives significantly.

Strategic Gifting as Inheritance Tax Planning

If you have assets in a state with inheritance taxes, gifting can help minimize your heirs’ potential inheritance taxes. Transferring assets to relatives during your lifetime allows those gifts to grow in value for their benefit while reducing your taxable estate. 

The good news is some transfers from your estate are excluded from gift tax, including:

• Eligible transfers made to your spouse
• Qualified charitable donations
• Medical or educational costs paid directly to the institution or provider.

It’s worth noting that you can only make tax-free transfers up to the annual gift tax exclusion limit ($19,000 per recipient in 2025). Anything over this amount—or in excess of the—$13.99M lifetime exemption—will be taxable at a maximum rate of 40%. You see why it’s vital to have an experienced tax planning attorney help with gifting.

How to Reduce the Impact of Estate, Inheritance and Gift Taxes

For those with high net worth, early planning is key to minimizing state and federal tax burdens. Here are a few inheritance tax solutions to discuss with your wealth advisor:

• Irrevocable trust. An irrevocable trust transfers property and investments to beneficiaries immediately, removing these assets from your estate. Regular contributions below the annual exclusion don’t incur gift taxes, and the interest and income from the trust go directly to your beneficiaries. Specialized trusts like the Spousal Lifetime Access Trust (SLAT) offer even more benefits.
• Selling/moving to another state. This may sound like one of the more drastic inheritance tax planning tips, but relocating somewhere without an inheritance and estate tax could save you money in the long run.
• Restructuring. There could be gaps in your operational documents that cause unintended consequences upon your passing. Having an experienced corporate lawyer examine your business structure can give you a full range of options, such as relocating, selling or acquiring new properties, and creating a business succession plan to minimize losses when you’re no longer around to run the company.
• Life insurance. Life insurance payable to an heir other than the estate is a valuable planning tool that can offset death taxes. If you can’t avoid the inheritance tax completely, a term life insurance policy can help your heirs cover the tax bill.

Speak to an Estate Planning Attorney About Inheritance and Gift Taxes

Since inheritance tax laws can be complex and vary significantly between states, a tax attorney is essential for navigating these intricacies. We can help you understand the specific tax obligations for any property you inherit, whether it’s located in Florida or another state. Email us at [email protected] today or schedule your consultation today to keep the conversation going.