A Primer on Estate and Inheritance Taxes

Estate and inheritance taxes sound frightening, but most retirees will never owe federal estate tax. That does not mean the subject can be ignored. For solo agers, the bigger risk is confusion: leaving heirs, friends, charities, nieces, nephews, siblings, or trusted helpers with a mess they do not understand. The tax rules affect how much passes to others, how quickly assets can be transferred, and whether professional help will be needed. Even when no tax is due, poor planning can create delay, legal fees, family resentment, and unnecessary stress. A little knowledge now can save your estate real money later.

Estate taxes and inheritance taxes are often used as if they mean the same thing. They do not.

An estate tax is a tax on the estate itself before assets are distributed. Think of it as a tax on what the person owned at death.

An inheritance tax is different. It is paid by the person who receives the inheritance. Think of it as a tax on what the beneficiary receives.

This distinction matters because the person responsible for the tax may be different. With an estate tax, the executor or trustee usually deals with it before distributions are made. With an inheritance tax, the beneficiary may be responsible, depending on state law and relationship to the deceased.

At the federal level, the estate tax applies only to very large estates. For people who die in 2026, the federal estate tax filing threshold is $15 million. That is up from $13.99 million in 2025. Estates below that amount generally do not owe federal estate tax.

That means many solo agers do not need to fear the federal estate tax. But they still need to understand the basics for three reasons.

First, your state may have its own estate or inheritance tax. State rules are very different from federal rules. Some states have estate taxes, some have inheritance taxes, some have neither, and Maryland has both. Tax Foundation reports that twelve states and Washington, D.C. impose estate taxes, while six impose inheritance taxes.

Second, taxes are only one part of estate settlement. Probate costs, legal fees, executor fees, trustee fees, appraisals, accounting fees, and real estate costs can reduce what people receive even when no estate tax is owed.

Third, beneficiary designations can override your will. Retirement accounts, life insurance policies, annuities, bank transfer-on-death accounts, and brokerage transfer-on-death accounts may pass directly to named beneficiaries. If those designations are outdated, the wrong person may receive the money.

For solo agers, this is especially important. A married person may assume a spouse will handle things. A parent may assume children will sort it out. But a solo ager may be leaving assets to a wider circle: siblings, nieces, nephews, friends, neighbors, charities, religious organizations, or caregivers. That makes clarity essential.

What counts as your taxable estate?

Your estate may include more than you think. It can include your home, bank accounts, investment accounts, retirement accounts, life insurance you own, vehicles, business interests, personal property, collectibles, and certain gifts made during life.

This does not mean all of it will be taxed. It means these assets may need to be counted to determine whether tax filing is required.

For many retirees, the home is the largest asset. A person who bought a house decades ago may have far more wealth than they realize. Add investment accounts, life insurance, retirement accounts, and personal property, and the estate may be larger than expected.

What about gifts during life?

Gifting can reduce the size of an estate, but it must be handled carefully.

For 2026, the federal annual gift tax exclusion is $19,000 per recipient. This means you can give up to $19,000 to as many people as you wish without using any of your lifetime estate and gift tax exemption. Married couples can generally combine exclusions and give $38,000 per recipient if they follow the gift-splitting rules.

For many solo agers, gifting is not about tax avoidance. It is about control and kindness. You may want to help a niece with education, assist a sibling, support a friend, or give money to charity while you are alive and able to see the benefit.

But gifting has risks. Do not give away money you may need for long-term care, housing, medical costs, taxes, emergencies, or inflation. Also be careful about giving appreciated assets, such as stock, because the recipient may receive your original cost basis and could face capital gains tax later. Assets inherited at death may receive different tax treatment.

Estate tax planning is not just for the rich

Even if your estate is nowhere near the federal estate tax threshold, you still need an estate plan.

A good estate plan answers these questions:

Who gets what?

Who is in charge?

Who can manage your money if you become incapacitated?

Who can speak with doctors?

Who receives your digital assets, passwords, photos, files, and online accounts?

Who handles your home, pets, personal property, and final arrangements?

Who gets paid, and how much?

The estate tax may never touch your estate. But confusion almost certainly will if you leave no instructions.

Special issues for solo agers with children

Solo agers with children may assume their children will handle everything. That may be true, but it may also be a dangerous assumption.

Children may live far away. They may not get along. One child may be responsible and another may be resentful. One may need money badly. One may believe they deserve more because they helped more.

If you have children, your estate plan should clearly name who serves as executor, trustee, power of attorney, and health care agent. Do not rely on birth order. Choose the person with the right temperament, honesty, time, and organizational ability.

If you want unequal distributions, explain your reasoning in a separate letter or memorandum. Unequal gifts often create emotional conflict. The tax cost may be small, but the family cost may be large.

Special issues for solo agers without children

Solo agers without children must be even more intentional.

You may need to name a sibling, niece, nephew, friend, professional fiduciary, attorney, trust company, or charity representative. Do not assume someone will automatically step in. Ask first.

If you leave money to friends or distant relatives, check whether your state has an inheritance tax. Some inheritance tax states treat close family members more favorably than unrelated beneficiaries. That means a friend may pay tax while a spouse or child might not.

Charitable gifts can be useful for solo agers who do not have obvious heirs. You can leave a dollar amount, a percentage of your estate, a retirement account, or a remainder after other gifts. Retirement accounts can be especially effective charitable assets because charities generally do not pay income tax the way individual beneficiaries might.

How to reduce tax and cost problems

The best strategy is not necessarily complex. Start with order.

Make a complete asset list. Include account numbers, institutions, beneficiary designations, approximate values, debts, insurance policies, passwords location, and contact people.

Review beneficiary designations every year. This may be more important than revising your will.

Consider transfer-on-death or payable-on-death designations where appropriate. These can help assets pass outside probate.

Use a revocable living trust if probate avoidance, privacy, incapacity planning, or multi-state real estate ownership is important.

Keep records of gifts. If you make gifts above the annual exclusion, ask a tax professional whether a gift tax return is needed.

Ask your estate attorney whether your state has estate or inheritance tax issues.

Avoid creating a beautiful legal plan that no one can find. Your executor or trustee must know where the documents are.

The real lesson

Estate and inheritance taxes are not just tax topics. They are planning topics.

For most retirees, the federal estate tax will not be the problem. The bigger problem will be disorganization, outdated beneficiary forms, family conflict, unclear documents, poor fiduciary selection, and unnecessary professional fees.

For solo agers, the goal is simple: leave a clean trail. Make your wishes clear. Choose the right people. Reduce avoidable costs. Protect yourself while alive and protect others after you are gone.

The kindest estate plan is not always the most sophisticated one. It is the one that works.

• Make a complete list of everything you own, including home, bank accounts, investments, retirement accounts, life insurance, vehicles, valuables, and digital assets.
• Review every beneficiary designation on retirement accounts, life insurance, annuities, bank accounts, and brokerage accounts.
• Check whether your state has an estate tax or inheritance tax.
• Ask whether your beneficiaries live in states with inheritance tax complications.
• Confirm who will serve as executor, trustee, financial power of attorney, and health care agent.
• Ask each person in advance whether they are willing to serve.
• Do not name someone just because they are the oldest child or closest relative.
• Keep your estate documents in a secure but findable place.
• Create a “death book” or estate instruction folder with contacts, passwords location, funeral wishes, bills, insurance, and account information.
• If you plan to give money during life, make sure you are not weakening your own retirement security.
• Keep records of significant gifts.
• Review your plan after death, divorce, remarriage, serious illness, major asset changes, moving to a new state, or family conflict.
• Consider charitable gifts if you have no obvious heirs or want part of your estate to support causes you value.
• Ask your attorney and tax adviser how to reduce probate costs, fiduciary fees, and unnecessary tax filings.
• Tell your executor or trustee where to find your documents. A perfect plan that no one can locate is not a plan.