The Average Inheritance Revealed: Here’s How Much Most People Receive

Insights into average amounts, financial planning, and management tips

Fact checked by Vikki VelasquezReviewed by Samantha SilbersteinFact checked by Vikki VelasquezReviewed by Samantha Silberstein

Inheritance can be life-changing. From paying off debt to investing in the future, it’s a financial turning point for many families. According to the Federal Reserve data, on average, American households inherit $46,200. However, this number is inflated by large amounts passed down in wealthy families. Here, we’ll get into the numbers and explore how inherited wealth can impact your financial planning.

Key Takeaways

• Large estates (over $13.61 million in 2024) are subject to federal estate tax.
• Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania impose inheritance taxes between 1 and 16%.
• Inheritances are often larger in areas with higher property values, income rates, and household wealth but may be offset by higher taxes.
• Proper management of an inheritance is essential for long-term financial planning.

Understanding Inheritance

Definition and Types of Inheritance 

Inheritance is what an individual passes on when they die, usually to the next generation or other loved ones. Inheritance takes many forms: 

• Direct monetary assets
• Real estate
• Investments (stocks, bonds, mutual funds, and other securities)
• Personal property
• Business interests or ownership stakes
• Retirement accounts
• Payouts from life insurance policies

Each type of asset comes with its own set of legal, practical, and tax conditions. Keep in mind that you can also inherit the debts and obligations of a deceased person. 

Important

Mortgages, loans, and other financial liabilities may need to be settled from the estate before any distribution to beneficiaries.

Legal and Tax Implications

Inheritance involves a legal process called probate, which confirms a will and distributes (and taxes) assets according to the deceased’s wishes and the state’s inheritance tax laws. 

If the person dies with a will, that will is reviewed by a probate court, which appoints an executor for the estate. The executor is the administrator in charge of filing necessary documents, notifying heirs and creditors, listing and valuing all assets, paying debts and taxes, and distributing the remaining assets to the beneficiaries. If there’s no will, a court-appointed administrator divides assets according to state laws. 

Taxes can reduce the amount heirs receive. While there is no federal inheritance tax, estates over $13.61 million in 2024 must pay federal estate taxes. Six states (Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania) impose inheritance taxes, with some exemptions for spouses and children or grandchildren. Iowa is phasing out the inheritance tax in 2025. As of 2024, Maryland is the only state that imposes both an inheritance tax and a state estate tax.

Warning

You may also have to pay capital gains or income taxes on assets you inherit.

When you inherit property, it is generally not considered taxable income. However, any subsequent income generated from the inherited property, such as rent or dividends, is taxable. For example, if you inherit a house and later sell it, you may have to pay capital gains tax on the sale. The taxable amount would be based on the difference between the sale price and the “basis” of the property, which is typically the property’s fair market value at the time of the decedent’s death.

Factors Influencing the Average Inheritance

Geographic Location

Where the deceased lived may affect how much you inherit and how much tax you pay on it. Like with the federal estate tax, all states offer an exemption that excludes all but the largest estates from taxation. 

Estate and inheritance tax rates vary widely, from 1% – 20%.

Alexander Evans, an attorney at Turke & Steil LLP, said inheritances tend to be larger in areas with strong economies due to the higher property values, income levels, and personal assets. Conversely, he says, the average inheritance is generally smaller in economically depressed areas.

Generational Differences

Around $84 trillion in assets will change hands over the next two decades. Much of the so-called Great Wealth Transfer will come from baby boomers, who will pass on to their heirs. A report from Cerulli Associates estimates that by 2045:

• Baby boomers (born 1946-1964) will inherit $4 trillion.
• Gen X (1965-1980) will inherit $30 trillion.
• Millennials (1981-1996) will inherit $27 trillion.
• Gen Z (1997-2012) or younger will inherit $11 trillion.

Economic and Market Conditions

Kathy Longo, president and founder of Flourish Wealth Management, said the current wealth boom is driven by demographic shifts and high market values.

“Real estate values have surged over 10% annually in the 2020s, far exceeding the historical 3% to 5% average,” said Longo. “Despite high prices, strong demand persists, and falling interest rates are likely to increase transactions without lowering prices. Investments in apartment buildings and rental properties have also risen significantly and will be a major part of inheritances. Additionally, the U.S. stock market is at record highs, boosting baby boomers’ wealth.” 

This transfer of wealth will have other notable market effects. “The step-up in cost basis for investments will enable heirs to sell appreciated assets without tax consequences, increasing liquidity and trading volume,” Longo noted. “For example, clients holding over $1 million in Apple (AAPL) stock, originally bought for $50,000, can now sell tax-free after inheritance. Real estate assets will also become more liquid as heirs sell properties to divide inheritances. This will likely increase the focus on financial planning for future generations as wealth is redistributed.”

Statistical Overview of Average Inheritance

Global Averages and Trends

According to the Organization for Economic Co-operation and Development (OECD), the share of inheritances in private wealth is returning to previous highs in some countries. In 1900, inherited wealth accounted for 55-78% of private wealth in countries like the United States, Sweden, and the United Kingdom. This ratio declined steadily through the 20th century but has begun rising again since the late 20th or early 21st century in most countries studied.

Average Inheritance by Country

Across OECD countries, average inheritance amounts ranged from $295 (Latvia) to $11,052 (Belgium) among the poorest quintile of households. For the wealthiest quintile of households, average inheritances ranged from $30,441 (Hungary) to $525,879 (Austria).

Impact of Demographics

Demographic factors can have major impacts on inheritance amounts. 

Across OECD countries, wealthier households consistently report receiving larger inheritances or gifts compared to poorer households.

Children of parents with a college education are also more likely to receive an inheritance. The median value of the inheritances was also higher in families where at least one parent has a college degree. 

Finally, data points to long-standing and substantial wealth disparities between families in different racial and ethnic groups. One study from the Federal Reserve Bank of Boston found the average white family has 4.4 times as much wealth as the average Black family.  

The Federal Reserve’s 2019 Survey of Consumer Finances (SCF) found nearly 30% of white families report having received an inheritance or gift, compared to about 10% of Black families, 7% of Hispanic families, and 18% of other families. White families are also more likely to report homeownership, retirement account ownership, retirement plan participation, and other indicators associated with higher levels of family wealth. 

Frequently Asked Questions (FAQs)

How Much Can You Inherit Without Paying Taxes?

The amount you can inherit without paying taxes depends on federal and state laws, as well as your relationship to the deceased. As of 2024, you can inherit $13.61 million without paying federal estate taxes, but you may have to pay state taxes depending on where the deceased lived. 

What Are Some Common Mistakes People Make When Managing Their Inheritance?

Common mistakes include impulsive spending, neglecting or paying too much in taxes, and failing to make a budget. Financial professionals recommend paying off high-interest debt and building an emergency fund before making any large purchases to avoid these costly mistakes. Talk to a financial advisor, accountant, or estate planning attorney to determine your situation’s best route.

How Should I Invest an Inheritance for Long-Term Growth?

Investing for long-term growth requires careful planning. Here are some strategies to help you make informed decisions:

• Before investing your inheritance, clarify your goals—are you saving for retirement, funding your children’s education, or something else?
• Consider your risk tolerance and time horizon. 
• Diversify across different asset classes (stocks, bonds, real estate, etc.) and geographic regions. 
• Understand and plan for tax implications. 
• Invest in retirement accounts for tax benefits and future security. 
• Balance immediate needs with long-term growth.
• Consider talking to a financial advisor to create a personalized plan.

Will I Be Eligible for Government Benefits or Financial Aid if I Receive a Large Inheritance?

Receiving a large inheritance can affect your eligibility for government benefits and financial aid, particularly for needs-based programs like Supplemental Security Income (SSI) and Medicaid. For SSI, individuals are limited to $2,000 in countable resources, while couples are limited to $3,000. So, even a modest inheritance could exceed these thresholds. To protect your benefits while still benefiting from an inheritance, consider a special needs trust or an ABLE account (for individuals with disabilities).

A large inheritance can also impact a student’s eligibility for need-based financial aid. Because the FAFSA considers previous tax returns and assets, inherited funds may reduce the amount of aid awarded for higher education.

The Bottom Line

If you do receive an inheritance, be sure you understand the legal and tax implications of your financial windfall and consider how location and generational factors affect average amounts. With the right financial education and planning, you can make informed decisions and make your inheritance count.

Read the original article on Investopedia.