Montana Inheritance Tax: What Heirs and Executors Actually Owe

You've inherited money or property from a Montana resident, and you want to know the tax bill. The short answer: Montana does not impose a state inheritance tax on beneficiaries, and it does not impose a state estate tax on estates. Heirs in Montana owe nothing to the state of Montana simply because they received an inheritance.

That's the good news. The more useful question is what you actually do owe, where real financial exposure can still arise, and what Medicaid recovery means for estates where the decedent received long-term care.

Montana Has No State Inheritance Tax and No State Estate Tax

Montana repealed its state estate tax. It has never had a standalone inheritance tax of the kind that Kentucky, Iowa, Pennsylvania, and Nebraska impose on beneficiaries. This means:

• A surviving spouse inheriting the family home pays no Montana state tax on that transfer.
• Adult children receiving a bank account, investment portfolio, or real estate through a will or intestate succession owe nothing to the Montana Department of Revenue for the inheritance itself.
• Distant relatives and non-family beneficiaries are in the same position — no Montana state-level inheritance tax applies.

This is a meaningful distinction from neighboring states. Iowa recently phased out its inheritance tax, but several other states still impose taxes ranging from 1% to 18% on specific beneficiary classes. Montana imposes none.

Federal Estate Tax Still Applies Above the Exemption Threshold

While Montana taxes no one at the state level, the federal estate tax applies to large estates. For 2026, the federal estate tax exemption is substantial — estates below the current threshold owe nothing to the IRS at the federal level either. Most Montana estates fall well below this threshold.

If the total gross estate — including life insurance, retirement accounts, real estate, and personal property — approaches or exceeds the federal exemption amount, an estate tax return (IRS Form 706) may be required even if no tax is owed. An estate attorney or CPA can assess this quickly, and for most Montana families it is a non-issue.

For smaller estates, the more pressing concern is not the estate tax but rather the Medicaid estate recovery program — which can take a far larger bite out of a modest estate than any inheritance tax would.

The Real Financial Exposure: Montana Medicaid Estate Recovery

Montana's Department of Public Health and Human Services (DPHHS) aggressively pursues reimbursement from the estates of deceased Medicaid recipients. Under MCA 53-6-165, the state can recover Medicaid costs paid for long-term care from any individual who was age 55 or older when they received those services, or who was permanently institutionalized at any age.

This matters enormously because Montana's Medicaid estate recovery program reaches further than most people realize:

It is not limited to probate assets. DPHHS can pursue recovery against property held in joint tenancy, accounts with payable-on-death designations, and real estate transferred via a Transfer on Death (TOD) deed. Structuring assets to bypass probate does not automatically shield them from recovery.

The state does not forgive spousal protections — it defers them. If a surviving spouse is living, DPHHS cannot execute recovery until that spouse also passes. But the debt doesn't disappear. The state maintains the right to file a claim against the surviving spouse's estate upon their death.

The $5,000 burial fund threshold is precise. Families who set up prepaid burial trusts as part of Medicaid spend-down planning need to understand that if the total burial account balance exceeds $5,000 at the time of death, DPHHS is entitled to any unused remainder above that threshold. An account valued at $5,100 with $2,300 spent on a direct cremation leaves $2,800 — and because the original balance exceeded $5,000, the entire remaining $2,800 must be remitted to the state.

Income Taxes on Inherited Assets: What Heirs Do Owe

Inheriting assets doesn't create immediate income tax. But what you do with inherited assets can trigger federal (and potentially Montana state) income taxes:

Retirement accounts. If you inherit a traditional IRA or 401(k), you generally must take distributions over a 10-year period (under current federal law for most non-spouse beneficiaries). Those distributions count as ordinary income in the year you take them. Montana taxes ordinary income at its standard rates.

Inherited investment accounts. Appreciated stocks, mutual funds, or real estate inherited from a decedent receive a "step-up in basis" to their fair market value at the date of death. If you sell an inherited stock immediately at that value, there is typically no capital gains tax owed. If you hold it and it appreciates further before selling, you owe capital gains only on the gain above the stepped-up value.

Rental income from inherited property. If you inherit a rental property and continue receiving rental income, that income is taxable in the year received.

None of this is an "inheritance tax" in the traditional sense — it is ordinary income or capital gains taxation on income generated after the inheritance. The inheritance itself is tax-free in Montana.

When No Probate Is Required — and When It Is

For estates valued at $100,000 or less in probate assets (net of liens and encumbrances), Montana allows heirs to bypass probate entirely using the Affidavit for Collection of Personal Property under MCA 72-3-1101. This requires waiting 30 days from the date of death, then presenting a notarized affidavit to banks, the MVD, and other asset holders.

This is the pathway most Montana families use. There is no court filing, no attorney required, and no probate fee — just the affidavit and a certified death certificate.

If the probate estate exceeds $100,000 or includes solely-owned real estate, formal or informal probate through the Montana District Court is required. The filing fee is $100. The process typically involves a personal representative, a notice to creditors published in a local newspaper for three consecutive weeks, and a four-month creditor claim window before final distributions can be made.

The absence of an inheritance tax does not eliminate the work of estate administration — it just removes one layer of complexity.

If you're handling a Montana estate and need to understand exactly which forms to file, which county offices to contact, and how to protect assets from Medicaid recovery, the Montana Funeral Laws & Consumer Rights Guide covers the full workflow from death certificate registration through small estate affidavit execution.

See more Montana guides →