Being named executor is overwhelming enough. Then you discover there might be taxes — on the estate itself. Here's what you need to know before filing anything.

Estate Tax vs. Inheritance Tax — What's the Difference?

These two terms get used interchangeably, but they're fundamentally different:

Estate tax is paid by the estate before assets are distributed to beneficiaries. Think of it as a tax on the right to transfer wealth. The federal government and some states impose estate taxes.

Inheritance tax is paid by the beneficiary after receiving assets. It's a tax on the right to receive wealth.

The US has both — depending on the state. Canada has neither in the traditional sense, but has deemed disposition at death, which can trigger significant capital gains tax.

Federal Estate Tax

The federal estate tax exemption for 2026 is $15 million per individual ($30 million for married couples), made permanent by the One Big Beautiful Bill Act signed July 4, 2025. Only estates exceeding this threshold owe federal estate tax, at rates up to 40%.

Here's the reality: only about 0.1% of estates owe federal estate tax. If the estate you're managing is under $15 million ($30 million for married couples), federal estate tax likely isn't your concern.

But don't stop reading — state-level taxes have much lower thresholds.

States with Inheritance Tax

Six states impose an inheritance tax on beneficiaries:

Note that Maryland is unique — it imposes both an estate tax and an inheritance tax.

States with Estate Tax

Twelve states plus the District of Columbia impose their own estate tax, often with much lower thresholds than the federal exemption:

• Oregon: $1 million threshold
• Massachusetts: $1 million threshold
• New York: $6.94 million threshold
• Washington: $2.193 million threshold
• Illinois: $4 million threshold

If you're managing an estate in one of these states, you may owe state estate tax even if the estate is well below the federal threshold. Check our guides for California, New York, and Illinois for state-specific details.

Canadian Probate Fees — Province by Province

Canada doesn't have estate or inheritance tax, but every province charges probate fees (called estate administration tax in Ontario). These vary dramatically:

The difference is staggering. An estate worth $500,000 would pay $525 in Alberta but approximately $7,500 in Ontario. See our province-specific guides for Alberta, British Columbia, and Ontario.

Deemed Disposition

While Canada has no estate tax, the CRA treats the deceased as having sold all capital property at fair market value immediately before death. This "deemed disposition" can trigger significant capital gains tax — particularly on:

• Investment portfolios
• Rental properties
• Business interests
• Cottages and vacation properties

The executor is responsible for reporting and paying these taxes from the estate.

What Executors Need to Do About Taxes

Here's your tax checklist as executor:

1. File a final income tax return for the deceased (T1 in Canada, Form 1040 in US) — covering January 1 to date of death
2. Apply for a clearance certificate (Canada) or closing letter (US) before distributing assets — this confirms all taxes are paid
3. File an estate income tax return if the estate earns income during administration (T3 in Canada, Form 1041 in US)
4. File an estate tax return (Form 706) if the US estate exceeds the federal exemption
5. Check state-level requirements — some states require separate estate or inheritance tax filings
6. File a terminal T1 plus optional rights-or-things return (Canada) to minimize tax

For a complete task-by-task guide, see our Executor's First 30 Days Checklist.

Common Tax Mistakes Executors Make

These errors can result in personal liability for the executor:

• Distributing assets before getting tax clearance — if the estate can't pay its tax bill after distribution, the executor may be personally liable
• Missing the deadline for the final tax return — the final return is due by the normal tax filing deadline (April 30 in Canada, April 15 in US) or 6 months after death, whichever is later
• Not claiming all available deductions and credits — medical expenses, charitable donations, and losses can reduce the tax burden
• Forgetting about deemed disposition on Canadian assets — this is the most common surprise for Canadian executors
• Ignoring state-level obligations — even if no federal estate tax is owed, state taxes may apply
• Not electing the spousal rollover (Canada) — assets transferred to a surviving spouse can be rolled over at adjusted cost base, deferring capital gains

Understanding your estate's tax obligations shouldn't require a CPA. EstateClarity explains your will and highlights jurisdiction-specific requirements — including taxes.

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