People inherit less than you might expect. In fact, most people think they’ll inherit far more than they really will.
If you do inherit money, it most likely won’t be subject to federal estate taxes. In 2023, those apply only to estates worth more than $12.92 million. But very few households have that level of wealth and most people inherit nothing at all. Here’s what the inheritance landscape looks like, according to the Federal Reserve’s most recent Survey of Consumer Finances from 2016 to 2019. If you need help with your estate plan or have received an inheritance, consider working with a financial advisor.
Why the Average Inheritance is Misleading
On average, American households inherit $46,200, according to the Federal Reserve data. But this figure is inflated by top-tier wealth and belies the fact that many households inherit no money at all.
Of those that do receive a bequest, most receive a small fraction of the average. The top 1% and 10% of households by wealth receive so much that their estates pull the average up. This creates the impression that many, if not most, households receive a comfortable nest egg. Very few actually do.
While less than a third of all households inherit any money, between 70% and 80% of households receive no inheritance at all.
Average Inheritance By Wealth Level
A consistent reality with inheritance is that almost all households who receive an inheritance expect more than they get. This may have to do with the prominence of estate taxes in the national debate, which creates the impression that inheritance and estates are a matter for ordinary Americans. Here’s a look at how much households with varying levels of wealth inherit.
Average inheritance: $719,000
Expected inheritance: $941,100
Measured by wealth, the top 1% of households receive overwhelmingly more than any other group measured. This is what causes such dramatically skewed data when it comes to measuring averages. This group receives more than four times as much as the next wealthiest cohort.
Average inheritance: $174,200
Expected inheritance: $266,600
The average inheritance for the remainder of the top 10% of households is significantly less than those at the very top but still considerable: $174,200. Then again, these households end up inheriting 35% less money than they expect to receive.
Average inheritance: $45,900
Expected inheritance: $60,100
On average, the next 40% of households receive an inheritance that’s closest to the national average. These households are also the most realistic in their expectations. All other cohorts expect vastly larger inheritances than they will receive. This swath of the population overestimates its inheritances by a relatively modest amount.
Average inheritance: $9,700
Expected inheritance: $29,400
A national average of $46,200 does nothing to communicate the fact that about half of all households who do receive an inheritance will get less than $10,000. In fact, this cohort expects to receive nearly three times what they will actually get.
The bottom half of households is the cohort that’s also least likely to receive any inheritance at all. With lower rates of college education and lower earnings, these households should not expect to share wealth among generations.
Do You Have to Pay Taxes on Inheritance?
Chances are that you won’t have to pay any taxes on money or property you inherit.
In 2023, the federal estate tax only applies to estates that transfer more than $12.92 million to beneficiaries. Keep in mind that it’s the responsibility of the decedent estate’s to pay this tax, not the person or entity that receives an inheritance.
The tax is only applied to property that exceeds the $12.92 million threshold. So if an estate is worth $13 million, only $800,000 would be subject to the federal estate tax in 2023.
Some states also charge their own estate taxes on top of the federal levy. However, a few states also tax those who receive inheritances. These levies are known as inheritance taxes and the following states have them:
- New Jersey
* Iowa is phasing out its inheritance tax by 2025
While the average inheritance is $46,200, only a small percentage of households end up actually inheriting money. For households that do receive inheritances, the size of those windfalls can vary greatly for those in the top 1% of households compared to those in the bottom half.
Estate Planning Tips
- Many people want to make sure they leave something behind for the next generation. If that’s you, make sure to avoid these five common estate planning mistakes.
- A financial advisor with estate planning expertise can help guide you through the sometimes complicated process of building an estate plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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