This is one of the most common questions people have when they start thinking about estate planning: “How much will my family owe in taxes when I pass?” The good news is that Virginia does not have an inheritance tax. For residents, that’s a more reassuring answer than you might expect, but there are still a few important nuances worth understanding.
Does Virginia Have an Inheritance Tax? The Short Answer
Virginia no longer has an estate tax or inheritance tax. Prior to July 1, 2007, Virginia had an estate tax, but it was effectively repealed following changes to federal law. That means when you leave assets to your heirs, they won’t owe anything to the Commonwealth simply for receiving their inheritance.
What About the Federal Estate Tax?
While Virginia won’t take a share, the federal government may, though most families won’t be affected. The federal estate tax exemption is $15 million per person in 2026, and the exemption is portable for spouses, meaning that with the right legal steps a couple can protect $30 million after both spouses have passed. For the vast majority of families, the federal estate tax shouldn’t be a concern.
What if You Own Property in Another State?
Here’s where things can get complicated. Another state’s inheritance tax may apply if the person leaving you money lived in a state that levies an inheritance tax. Pennsylvania, for example, has a tax that applies to out of state inheritors. Similarly, if a Virginia resident dies owning real property in another state, some or all of the assets of the estate could be subject to an estate or inheritance tax in the state where that real property is held.
Are There Any Other Taxes That Might Apply Upon Death?
Virginia imposes a probate tax on the estate of every decedent whose will is admitted to probate or whose estate is administered in the Commonwealth, calculated at 10 cents per $100 of the value of the probate estate. In addition, localities may — but are not required to — impose a local probate tax equal to one-third of the state rate, or approximately 3⅓ cents per $100. Assets that pass outside of probate — such as jointly-held property, beneficiary-designated accounts, revocable trusts, and TOD/POD designations — are not subject to the probate tax, making probate avoidance planning an effective strategy for minimizing this cost.
When a person dies, a final individual income tax return must be filed for the year of death, reporting all income earned through the date of death. Also, if the estate or a trust generates income during administration — such as interest, dividends, or rental income — a fiduciary income tax return may also be required. Beneficiaries who inherit IRAs or other retirement accounts should be aware that distributions are subject to ordinary income tax, as these accounts have never been taxed, and recent changes under the SECURE Act generally require most non-spouse beneficiaries to fully distribute inherited IRAs within ten years. Finally, while inherited assets generally receive a stepped-up basis to fair market value as of the date of death — which can significantly reduce or eliminate capital gains tax on a subsequent sale — assets held in retirement accounts and certain other assets do not receive this step-up and remain fully taxable upon distribution.
Why Planning Matters
The absence of a state inheritance tax is good news, but it isn’t a reason to skip estate planning. Beneficiary designations, powers of attorney, healthcare directives, and trust structures all play a critical role in making sure your wishes are honored and your family is protected, regardless of the tax picture. At Vested Partners, estate planning attorney Robyn Smith Ellis has been helping Virginia families navigate estate tax planning for over 25 years. Whether you’re starting from scratch or reviewing an existing plan, our integrated approach ensures nothing falls through the cracks.
If you’re ready to find out what a well-crafted estate plan can do for your family, visit our website or call our office at (540)384-4275 to schedule a consultation with Robyn.
