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TL;DR: Arizona doesn’t have estate or inheritance taxes, but smart planning is still key.
- No estate or inheritance tax in Arizona
- Federal estate tax applies to estates above $13.99M (2025)
- No Arizona gift tax, but federal gift tax rules apply
- Estate planning is still essential to avoid probate, reduce income taxes
- Tools like living trusts, IRAs, and step-up in basis help protect wealth
Establishing a solid financial plan for your future can be daunting. That process becomes a little easier when you understand how estate and inheritance taxes may impact your legacy.
These taxes are complicated and challenging to navigate; they can enormously impact the wealth passed on to your beneficiaries. Understanding the basics of estate and inheritance tax laws in Arizona can help you plan for your estate.
Does Arizona Have an Estate Tax?
When planning for your future, you'll have a lot of questions. Here’s a simple answer to a common tax and wealth planning question: There is no Arizona estate tax.
Arizona does not impose any tax on estates when property is transferred after the owner's death.
The estate size does not matter and is irrelevant in this situation. With no Arizona estate tax, those with substantial assets can enjoy their wealth without the burden of potential taxes. However, you may be subject to federal estate taxes.
Starting in 2023, the federal estate tax rates range from 18%-40%. They apply to the total sum of assets worth more than $12.92 million. This is higher than 2022's tax exemption limit of $12.06 million.
For 2024, the exemption increased to $13.61 million, and in 2025, it rose again to $13.99 million. Staying informed on these figures is important for high-net-worth individuals. According to Merril Lynch, the single taxpayer limit could drop to around $7 million in 2026.
If you're managing a sizable estate, understanding how both federal and Arizona estate tax rules apply to your situation is a smart step.
Does Arizona Have an Inheritance Tax?
There is no inheritance tax in Arizona either. That should alleviate some concerns you may have about passing down assets to your heirs without a financial burden.
While Arizona residents are fortunate to have no estate or inheritance taxes, it is still important to plan. Proper estate planning ensures the correct distribution of your assets and provide peace of mind for you and your loved ones. In addition, there is no federal inheritance tax to worry about.
It’s worth noting that while Arizona doesn’t impose a gift tax either, the federal gift tax still applies. For 2023, the annual exclusion was $17,000, and by 2025, it has increased to $19,000 per recipient. This means you can gift up to that amount to everyone annually without triggering gift tax reporting requirements. Following Arizona inheritance laws carefully can help you avoid unintended consequences when transferring wealth.
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Why Do You Still Need Estate Planning?
Even without inheritance tax in Arizona, gift taxes, or Arizona estate tax, you still need to protect your assets. There is no need to expose yourself to additional expenses that can occur when you pass down your assets.
At Asset Preservation Wealth and Tax, we look at the lack of inheritance tax in Arizona as just one piece of the puzzle. We also consider potential income taxes and expenses like probate when planning an estate for clients.
Living Trusts and Probate
While probate isn't inherently bad, it is expensive and time-consuming. Having a revocable living trust lets you move the title of assets like your home, car, and investments into the trust. Understanding Arizona living trust laws helps you decide if this strategy fits your estate needs.
You will maintain complete control of the assets during your lifetime. Whoever you appoint as the successor trustee will manage the trust upon your passing. The trust documents how to distribute its assets, and the successor will help put that into effect. This is one effective way to avoid probate.
A revocable living trust can prevent your estate from becoming public record and keep costs down by avoiding court fees. With a properly created and funded trust, your heirs may never need to enter probate court. That’s a big advantage under Arizona inheritance laws.
Thrift Savings Plans, IRAs and Qualified Funds
Thrift savings plans (TSPs) and IRAs have become key components of many people's retirement accounts. It is important to know what happens to them when someone dies. The inherited amount from a Roth IRA is not taxable. However, when someone inherits a traditional IRA or a 401(k), they usually have to pay income tax on the money they withdraw.
Your beneficiaries must understand that withdrawing money from inherited accounts raises their taxable income and increase their tax bill. This could also push them into a higher tax bracket. Consult a financial advisor or tax professional to ensure you pay all taxes accurately and on time.
Changes in legislation (the SECURE Act and its updates) require non-spousal beneficiaries to withdraw the entire balance of inherited IRAs within 10 years.
Inherited Property and Capital Gains
While there is no inheritance tax in Arizona for property, but some issues could still make your assets a burden for your heirs. What if you have a property you want to pass down? You might consider putting it in your beneficiary's name before you pass away to avoid taxes or probate. However, this could be a costly mistake because the step-up in basis would not apply.
A step-up in basis is a readjustment in the value of your appreciated assets for taxes. Here, the basis would be the cost or purchase price. Upon your passing, the value steps up to match a fair market value. This can reduce the Arizona capital gains tax if your heirs sell it.
There is no separate Arizona capital gains tax rate. Instead, capital gains are taxed as regular income on your Arizona state return. This applies whether gains come from selling real estate, investments, or inherited property.
If your heirs plan to sell assets they inherit, they’ll need to report capital gains as income under Arizona tax law. Proper estate planning helps reduce the taxable gain through strategies like the step-up in basis.
Knowing how capital gains tax works on inherited property helps your heirs avoid unnecessary taxes. If, for example, you originally purchased your home for $60,000, it could appreciate by the time you pass on. Let’s say to a value of $250,000. If your beneficiary then sells the property for $280,000, then they would only pay capital gains tax on $30,000.
Healthcare Directives and Guardianship
Estate planning isn’t just about money. It’s also about making decisions for your health and your family. Appointing guardians for minor children and creating advance healthcare directives ensures your wishes are followed. These elements, while not tied to inheritance tax in Arizona, build a complete and thoughtful estate plan.
Planning For the Future
There might not be estate or inheritance tax in Arizona. But there are many other potential tax burdens and expenses associated with inherited assets. At Asset Preservation Wealth & Tax, we look at your entire situation to create a complete plan for you.
We have access to highly skilled and experienced estate planning attorneys and tax professionals. They give credible insight on what should work for your exact situation. And, as fiduciaries, we’re must always put your best interests first. Take the next step by exploring how Arizona inheritance laws affect your estate—and how we can help you plan smartly.
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Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.
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