Luminary currently supports inheritance tax modeling for the five U.S. states that levy an inheritance tax. This page describes which states are supported, the rates and beneficiary classifications we apply, and the key calculation assumptions built into our engine.

How inheritance tax works

Unlike the federal estate tax, which is assessed on the total estate, inheritance tax is assessed on individual beneficiaries based on their relationship to the decedent. Each state defines its own beneficiary classes, exemption thresholds, and tax rates. The interaction between state inheritance tax and federal estate tax varies materially by state.

General assumptions across all states

• Luminary applies inheritance tax to the net share of the estate received by each beneficiary after deductions, consistent with each state's rules for allowable deductions (debts, expenses, etc.).

• Assets passing to a surviving spouse generally qualify for the unlimited marital deduction at the federal level and are exempt from inheritance tax in all five supported states.

• Charitable bequests are exempt from inheritance tax in all five states and are excluded from the taxable base accordingly.

• Multi-state scenarios involving both a resident state and non-resident situs states are supported. Luminary applies each state's situs rules and apportionment logic independently.

• Interaction with the federal estate tax varies by state, and Luminary models each state's mechanics separately:

  • Pennsylvania and New Jersey: state inheritance tax is computed first, then deducted on the federal return under IRC §2058. Neither state allows a deduction for federal estate tax.

  • Kentucky and Nebraska: federal estate tax attributable to state-taxable property is deductible in computing the state inheritance tax, and the state tax is deductible federally under §2058. The two are mutually dependent, so Luminary solves them iteratively until the values converge.

  • Maryland: Maryland levies both an estate tax and an inheritance tax. Inheritance tax actually paid is credited against the Maryland estate tax rather than deducted.

• Where a state applies a per-beneficiary exemption (NE, KY, MD), the exemption is applied per individual across everything that person receives from the decedent, not per bequest.

Inheritance tax assumptions by state

Pennsylvania

Rates by beneficiary class

• Lineal heirs (children, grandchildren, parents): 4.5%

• Siblings: 12%

• All other transferees: 15%

• Spouses and minor children of a decedent: 0%

• Charitable organizations: 0%

Key calculation assumptions

• PA inheritance tax is computed first on the gross taxable estate before federal estate tax is applied.

• Federal estate tax then deducts the PA inheritance tax paid via IRC §2058 (the state death tax deduction). PA does not allow a deduction for federal estate tax at the state level.

• A 5% early-payment discount applies if inheritance tax is paid within three months of the decedent's death. Luminary reflects this discount.

• Under PA §9128, Pennsylvania residents may deduct death taxes paid to other states on Pennsylvania-situs property. Luminary applies this deduction where multi-state scenarios are modeled.

• Real or tangible personal property held inside an LLC is treated as an intangible asset for non-resident decedents, and is excluded from the PA taxable estate if specified by the user.

New Jersey (limited availability)

Rates by beneficiary class

• Class A (spouse, domestic partner, children, grandchildren, parents, stepchildren): exempt

• Class C (siblings, spouses/civil union partners of children):

  • Rate for each beneficiary:

    1. First $25,000: no tax

    2. Next $1,075,000: 11%

    3. Next $300,000: 13%

    4. Next $300,000: 14%

    5. Over $1,700,000: 16%

• Class D (all others):

  • Rate for each beneficiary:

    1. First $700,000: 15%

    2. Over $700,000: 16%

• Class E (qualified charities, religious organizations): exempt

• No inheritance tax is imposed on:

  • Transfers to a beneficiary having an aggregate value of less than $500

  • Life insurance proceeds paid to a named beneficiary

Key calculation assumptions

• NJ inheritance tax is calculated on the gross estate allocated to taxable beneficiaries.

• New Jersey looks to where the decedent lived and where the asset is located. Residents are taxed on in-state real/tangible property and on intangibles anywhere; non-residents are taxed only on real/tangible property physically located in New Jersey.

• NJ does not allow a deduction for federal estate tax at the state level.

• Federal estate tax deducts NJ inheritance tax paid via IRC §2058.

Maryland (coming soon)

Maryland is the only state that imposes both an estate tax and an inheritance tax. The two are coordinated so that an estate is not fully taxed twice (see "MD estate tax credit" below).

Rates by beneficiary class

Maryland uses two buckets:

• Exempt (0%): spouse, children, grandchildren, great-grandchildren, stepchildren, step-grandchildren, parents, grandparents, siblings, a child's spouse, and registered domestic partners

• All other transferees: 10% flat. Includes nieces, nephews, aunts, uncles, cousins, friends, and unrelated individuals

• Charitable organizations: 0%

The following are exempt regardless of who receives them:

• Life insurance proceeds paid directly to a named beneficiary

• Property with an aggregate value of less than $1,000 passing to any one person

Key calculation assumptions

• MD estate tax credit - Inheritance tax actually paid is credited against the Maryland estate tax. If the inheritance tax paid equals or exceeds the estate tax, no Maryland estate tax is owed. Luminary assumes both taxes are paid at the same time. Example: an estate with $1,600,000 of Maryland estate tax and $1,500,000 of inheritance tax due owes $100,000 of net Maryland estate tax.

• Situs — Maryland resident decedent - Real property and tangible personal property are taxed only if located in Maryland. Intangible personal property is taxed if the decedent was domiciled in Maryland at death — the situs of intangibles follows the decedent's domicile.

• Situs — non-resident decedent - Only real property and tangible personal property physically located in Maryland is taxed (for example, a beach house in Maryland or a boat docked there). Effective July 1, 2026 (HB17), the situs of intangible property follows the decedent's home state, so a non-resident's intangible assets are no longer pulled into the Maryland inheritance tax.

Nebraska (coming soon)

Rates by beneficiary class

Nebraska applies a per-beneficiary exemption and then a flat rate above it. Exemptions are per individual, not per bequest. Any beneficiary under age 22 is exempt.

• Surviving spouse: exempt

• Immediate relatives — parent, grandparent, sibling, child (including legally adopted children), and other lineal descendants: first $100,000 exempt, 1% above.

• Remote relatives — uncle, aunt, niece, or nephew related by blood or legal adoption, their lineal descendants, and the spouse or surviving spouse of any of those persons: first $40,000 exempt, 11% above

• All other transferees: first $25,000 exempt, 15% above

Key calculation assumptions

• County administration - Nebraska's inheritance tax is a state-level tax, but it is administered, collected, and filed at the county level. This does not change the calculation, and Luminary models it as a single state-level liability.

• Circular calculation - Because federal estate tax is deductible in computing Nebraska inheritance tax and Nebraska inheritance tax is deductible federally under §2058, the two are mutually dependent. Luminary solves them iteratively until convergence.

• Situs — resident decedent - All property owned at death is subject to Nebraska inheritance tax.

• Situs — non-resident decedent - Only real property and tangible personal property situated in Nebraska is subject to the tax.

Kentucky (coming soon)

Rates by beneficiary class

• Class A — surviving spouse, parent, child, grandchild, brother, sister, half-brother, half-sister: exempt for dates of death after June 30, 1998

• Class B — niece, nephew, half-niece, half-nephew, daughter-in-law, son-in-law, aunt, uncle, great-grandchild: $1,000 exemption, then graduated rates of 4%–16%

• Class C — all persons not in Class A or Class B, including cousins: $500 exemption, then graduated rates of 6%–16%

Key calculation assumptions

• Tax base - Kentucky inheritance tax is assessed on the amount the beneficiary actually receives, after estate taxes.

• Cumulative bracket system - All gifts from the same decedent to the same beneficiary are aggregated before the brackets are applied.

• Circular calculation - A portion of federal estate tax paid is deductible on the Kentucky return — specifically the share attributable to Kentucky-situs property, both tangible and intangible — and Kentucky inheritance tax is deductible federally under §2058. Luminary calculates federal estate tax, calculates Kentucky inheritance tax net of that deduction, revises federal estate tax, and repeats until the values converge.

• Gross-up - Luminary's system default is that inheritance tax is paid out of the residue of the estate. Under Kentucky's rules, that tax payment is itself a taxable gift to the beneficiary, which increases the taxable amount, which increases the tax. Luminary iterates this calculation until it converges.

• Early-payment discount - Kentucky allows a 5% discount if the tax is paid within nine months of the date of death. Luminary assumes the discount is always taken, so the modeled liability is the calculated tax × 0.95.

• Situs — resident decedent - All property belonging to a Kentucky resident is subject to the tax, except real property and tangible personal property located in another state.

• Situs — non-resident decedent - Real property and tangible personal property located in Kentucky is subject to the tax.