What Is The Average Inheritance In The US? The Answer May Be Less Than You Expect

Contrary to common expectations, the average inheritance American households receive is lower than many expect. 

A common misconception is that inheritance amounts are generally substantial, but data suggests otherwise. The Federal Reserve’s Survey of Consumer Finances from 2016 to 2019 indicates that the average inheritance for American households is approximately $46,200. This figure is significantly influenced by the wealthiest households, which skews the average upward, masking the reality that many inherit far less or nothing at all.

The distribution of inheritance is highly unequal. Families in the top 1% of wealth receive, on average, $2.7 million in inheritance. In contrast, the least wealthy families average only $6,100. This disparity is further highlighted by the fact that the wealthiest 1% of families inherit $447 for every $1 received by the least wealthy group. Those in middle wealth ranges, such as $25,000 to $50,000, $50,00 to $100,000 and $100,000 to $250,000, receive inheritances of $14,800, $22,50, and $51,400, respectively. How do you compare?

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In addition to the disparity in amounts inherited, many people’s expectations regarding inheritance are often misaligned with reality. Factors such as education level and race significantly impact inheritance amounts. For instance, people without a college degree inherit an average of $76,200, while those with a college education receive around $92,700.

Although these numbers may not be what most anticipate, the total amount Americans inherit has grown significantly over time. In 2016, Americans inherited $427 billion, a 119% increase from 1989 after adjusting for inflation, according to Inheritance Advanced. 

Estate taxes typically do not affect most inheritances. The federal estate tax for 2023 applies only to estates worth more than $12.92 million, with rates ranging from 18% to 40%. This means that if someone dies in 2023 and their estate is worth $12.92 million or less, it is not subject to federal estate tax. For married couples, this threshold is doubled to $25.84 million. 

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The tax is levied on the portion of the estate exceeding the threshold. For example, an estate valued at $13 million in 2023 would only have the amount above $12.92 million taxed. It is worth noting that some states impose their own estate taxes, and a few also levy inheritance taxes.

As of 2023, six states have a state-level inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Maryland is unique in imposing both an estate tax and an inheritance tax. Inheritance taxes are levied on an individual's estate at death or on the assets transferred from the decedent's estate to their heirs, with exemptions often applied to the size of the gift rather than the size of the estate.

Twelve states and Washington, D.C., impose estate taxes. In most states, estate taxes are progressive, meaning the tax rate increases with the total value of the decedent’s assets. Connecticut and Vermont have a single, flat estate tax rate. Hawaii and Washington have the highest top estate tax rates at 20%, followed by eight states and Washington, D.C., with a top rate of 16%. Oregon has the lowest estate tax exemption at $1 million, while Connecticut has the highest exemption at $12.92 million.

For those considering estate planning or expecting an inheritance, here are some tips:

• Understand tax implications: While most inheritances are not subject to federal estate taxes, it’s important to be aware of any state-level taxes that might apply.

• Realistic expectations: Align your expectations with reality. The average inheritance varies widely based on several factors, including wealth level, race and education.

• Estate planning: If you have assets, consider creating an estate plan to clearly outline your wishes. This can help minimize disputes and ensure your assets are distributed according to your intentions.

• Seek professional advice: Consulting a financial adviser or estate planner can provide tailored advice based on your financial situation and goals.

• Invest wisely: If you receive an inheritance, consider how it can best serve your long-term financial goals. This might involve paying off debts, saving for retirement or investing.

• Gifts during lifetime: If you’re planning to leave an inheritance, consider the benefits of giving gifts during your lifetime. This can reduce the size of your estate and potentially lower estate tax liability.

Stay informed: Keep abreast of changes in estate tax laws and thresholds as these can impact estate planning strategies.