What is inheritance tax?

An inheritance tax is a tax paid by heirs or beneficiaries of an inheritance, according to Investopedia. An inheritance tax rate depends on the value of the asset received or the relationship to the descendant.

The value of inherited property receives a step-up in basis so as to reflect the fair market value of the property. It is an advantage of the heir or the beneficiary as it minimizes tax liability, according to Investopedia. The difference between the inheritance tax and the estate tax is that the former taxes the heir who has received the property, while the latter applies to the assets of the deceased's estate.