Inheritance Taxes vs. Estate Taxes: Know the Difference
Dec. 7, 2025
When families start thinking about long-term planning, they often want clarity about what may happen financially after someone passes. These questions can feel challenging, especially when loved ones hope to protect what they’ve built and reduce stress for the next generation.
Since estate planning involves both legal and practical considerations, it’s natural for people to wonder how different tax rules may apply.
I’m David W. Walker Attorney at Law, serving individuals and families throughout Columbia, Missouri, as well as Jefferson City, Fulton, and Boonville. When clients come to me for estate planning support, they often want to understand the difference between inheritance taxes and estate taxes so they can make informed decisions about the future.
I work to make sure every person I serve feels grounded and confident as we construct a long-term plan.
Once people understand that estate planning applies to estates of all sizes—not only large ones—they usually feel more comfortable learning the finer points of the process. Let’s explore how these tax structures differ and why the distinction matters.
How Estate Taxes Work
Estate taxes apply to the total value of an estate before any assets are passed on to beneficiaries. The federal government imposes these taxes, and a few states set their own rules as well.
When families begin estate planning, it helps to understand the factors that determine whether an estate owes these taxes. That knowledge guides decisions regarding gifts, asset distribution, titling, and long-term planning tools.
Several components shape whether estate taxes come into play:
Estate tax thresholds: These thresholds determine whether an estate owes anything at all. Because many estates fall below the federal limit, families sometimes assume estate taxes will never apply to them. Through careful estate planning, I help clients confirm whether their assets may trigger these thresholds and whether future changes in law could affect them.
Estate valuation: Valuation includes real estate, bank accounts, investments, business interests, retirement assets, and personal belongings. These items must be verified or appraised during administration. Estate planning helps families prepare for these steps so the process feels more manageable when the time comes.
Payment of estate taxes: These taxes are paid from the estate before distributions occur. That means beneficiaries receive whatever remains after payment. Because this can affect how much loved ones ultimately receive, many families use estate planning tools to structure gifts or transfers in ways that may reduce the taxable amount.
With the structure of estate taxes understood, it becomes easier to transition into how inheritance taxes differ, since they’re applied to beneficiaries rather than the estate itself.
The Basics of Inheritance Taxes
Inheritance taxes are imposed on the individuals receiving assets rather than on the estate. Only a small number of states collect these taxes, but they can still affect families who own property in multiple locations or who move between states.
Even though Missouri doesn’t impose an inheritance tax, it’s still important for clients to grasp how these rules work so they’re fully prepared during the estate planning process.
Several features make inheritance taxes distinct:
Tax obligations vary by relationship: Some states charge lower rates for close relatives and higher rates for more distant beneficiaries. This structure gives families another reason to think carefully about how they want to distribute assets during estate planning.
Beneficiaries pay the tax themselves: Unlike estate taxes, these taxes aren’t paid from the estate’s assets. Beneficiaries are responsible for calculating and paying what they owe, which can affect how they plan for personal finances.
State-by-state differences: Because states set their own rules, families with property in different places should understand how those state laws might affect their estate planning strategy.
Once families see how differently these two taxes operate, they’re usually ready to explore how the distinctions can influence decisions about long-term planning.
How These Differences Shape Planning Decisions
Estate taxes focus on the estate itself, while inheritance taxes focus on the people receiving the assets. That distinction affects the timing of transfers, the structuring of gifts, and the use of planning tools that can promote stability for beneficiaries. To make these choices easier, I often explain the planning considerations families encounter as they evaluate their goals.
Some of the most common planning considerations include:
Lifetime gifts: Strategic gifting can reduce the size of the taxable estate. When people start estate planning early, they can make thoughtful choices about annual gifts, charitable donations, or support for family members.
Titling of property: How assets are titled can influence whether they’re included in the taxable estate. Joint ownership, survivorship designations, and beneficiary assignments all play a part. Estate planning offers families the chance to adjust these details while keeping their intentions intact.
Use of trusts: Trusts may help manage tax exposure and support beneficiaries over time. They can also help separate certain assets from the probate process. When used thoughtfully, trusts can support the goals families have for both estate taxes and inheritance taxes.
As clients weigh these options, the shift from planning tools to practical outcomes becomes a natural transition—families want to understand what these decisions mean for those they love.
Preparing Your Family for Tax Responsibilities After Your Passing
Understanding the difference between estate taxes and inheritance taxes is only one part of responsible long-term planning. Families also benefit from preparing loved ones for what to expect after someone passes. Even when taxes don’t apply—or apply only in limited circumstances—clear communication helps reduce confusion, minimize conflict, and more.
Many families are surprised to learn how much responsibility falls on executors, trustees, and beneficiaries during administration. When people take steps during estate planning to organize information and explain their decisions, the transition becomes far easier for everyone involved.
Here are several ways families can prepare loved ones for future tax and administrative responsibilities:
Outline tax-related documents in advance: Providing a clear list of where to find wills, trusts, financial records, and property information can prevent loved ones from struggling to locate important documents during an emotional time.
Communicate your intentions: Explaining why assets are titled a certain way or why you chose specific beneficiaries helps prevent misunderstandings. Families often feel more secure when they know the reasoning behind major planning decisions.
Clarify roles and responsibilities: Executors, trustees, and beneficiaries each have distinct tasks. When people understand these roles in advance, they’re better prepared to handle obligations related to tax filings, property transfers, and communication with financial institutions.
Discuss multi-state assets when relevant: Families who own property in more than one state should understand how those locations might influence tax rules. Early conversations can help beneficiaries plan ahead and avoid surprises.
Provide guidance on professional support: Many loved ones feel overwhelmed by legal, financial, or tax duties. Leaving instructions to contact an attorney, accountant, or financial advisor can help reduce stress during the administration process.
When families approach estate planning with clarity and communication, they help loved ones feel supported and empowered—not burdened—by future responsibilities. Taking these steps strengthens the overall planning strategy and makes it easier for beneficiaries to honor your wishes with confidence.
Get in Touch With Our Law Firm to Learn More Today
If you’re ready to work through inheritance taxes and estate taxes with guidance tailored to your goals, I’m here to help you build a plan that reflects your wishes and supports your loved ones. I serve individuals and families throughout Columbia, Missouri; Jefferson City; Fulton; and Boonville.
Whether you’re updating documents or creating a new estate planning structure, I’m ready to assist you as you move forward.