An inheritance tax is levied by individual states and paid by the beneficiaries. Each beneficiary is taxed separately on their portion of the inheritance. The tax rate depends on the state. Property generally is taxed its fair market value at the time of the person's death.
Since inheritance taxes generally have a high threshold (more than $1 million in most states), and there are numerous exceptions and deductions, not many people end up paying taxes. For example, immediate family members often are exempt from inheritance taxes.
Likewise, several exemptions apply to estate taxes, according to IRS.gov's "Frequently Asked Questions About Estate Tax." These include property left to a spouse, money given to a qualifying charity, administration costs and fees, and any money lost (such as in an investment account) while the estate is being administered. In fact, according to the IRS, estate taxes are paid by only the wealthiest 2 percent of all Americans.