Inheritance Tax
Inheritance tax is a tax imposed on the transfer of Assets from a deceased person to their Heirs or Beneficiaries.
In general, it's a tax on the Inheritance that Surviving Families receive, usually calculated as a percentage of the value of the assets being transferred.
There is no federal inheritance tax, but as of 2023, six states impose an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Tax rates differ by each state.
Inheritance tax is different from Estate Tax, although both are taxes related to the transfer of wealth at death.
Estate tax is imposed on the entire Estate of the deceased before assets are Distributed, whereas inheritance tax is levied on the actual inheritances received by the beneficiaries.
Inheritance tax can be complex and may vary depending on the circumstances. Therefore, it's best handled by a Certified Public Accountant or Estate Attorney to ensure that all financial and legal requirements are met.
Other important points to understand about inheritance tax include:
Taxable Assets: Inheritance tax typically applies to a wide range of assets, including money, real estate, investments, personal property, and other forms of wealth that are passed on to heirs through an estate.
Exemptions and Thresholds: Many jurisdictions provide exemptions or thresholds, meaning that only inheritances above a certain value are subject to taxation. Smaller inheritances may be exempt from inheritance tax.
Beneficiaries: Inheritance tax is usually paid by the beneficiaries or heirs who receive the assets from the estate. The tax liability is based on the value of the assets they inherit.
Deductions and Allowances: Some states offer deductions or allowances that reduce the taxable value of the inheritance. Common deductions include Funeral expenses and Debts of the deceased.
Gifts and Lifetime Transfers: In some places, lifetime gifts made by the Decedent may also be subject to inheritance tax if they were made within a certain number of years before their death.
Spousal Exemption: Some states may provide a full or partial exemption from inheritance tax for assets left to a surviving spouse. This is often referred to as a Spousal Exemption or Marital Deduction.
