Inheritance tax is the name given to formal taxes owed by a person on his or her estate, inheritance, or certain kinds of gifts from the person or the property of one person to the other during this individual's lifetime. If you're inheriting money, one of the most important things to know is what kind of inheritance tax you may need to pay.

There are three types of inheritance tax, federal, state, and local. If you are inheriting money from a deceased loved one who was specifically listed on your income tax returns as being an income taxpayer, then you will owe federal estate or inheritance taxes. This means that the estate, not the deceased person themselves, pays these taxes.

These taxes are levied on the total value of an estate, including both inherited assets and any money paid out during lifetime as compensation for services rendered, such as a pension. The amount you'll have to pay will depend on your loved one's wealth and where they lived at death.

Inheritance tax is a tax that is paid when someone passes away. The inheritance tax owed depends on the value of the estate that the person died to leave behind. The inheritance tax system varies from country to country, but the basic gist is that when someone dies, their estate is divided into two parts: the first part is free of inheritance tax, and the second part is taxed.

The amount of inheritance tax payable also depends on a number of factors, including where the deceased person was living at the time of death, whether any children were born to them during their lifetime, and how much income they earned from their estate.