Another confusion is that people commonly use the terms 'inheritance tax' and 'federal estate tax' interchangeably, which are not equivalent. The estate tax is normally paid by the deceased's estate following his or her death, while the inheritance tax may be levied against some beneficiaries of the deceased according to their state laws. Learning the ins and outs of the inheritance tax and estate tax will help the family plan out their financial responsibilities. Is it necessary to pay tax on inheritance? Yes, but there are certain conditions attached.