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All you need to know about inheritance tax laws

Inheritance tax law is about the state tax payable to the money or property that you have got under inheritance. Unlike the federal tax which is levied on the property, the beneficiary of the property is responsible for paying the tax, not the estate. However, this tax is not common for all the people but only six states impose an inheritance tax, and even if you are from one of those states you can also be exempted from paying it.

All you need to know about inheritance tax laws
These taxes are also known as death taxes. Two of these states charge both state and federal tax and an inheritance tax. But after all, you are on due only if you are answerable to these questions: whether you live in one of these states? Or the deceased person lived there at the time of his death or the inherited property is located there.

How is inheritance tax different from estate tax?
An estate tax is levied upon the total value of the decedent’s overall estate. But according to the inheritance tax laws, the inheritance tax applies to each endowment. The estates legally need to pay the estate tax whereas the beneficiaries are authoritative to pay the inheritance tax for the property they have inherited. And in some cases, the deceased individual instructs in their will whether the executor should also pay inheritance taxes due apart from the estate, sparing the beneficiaries.

How does inheritance taxes work?
As per the inheritance tax laws, inheritance tax comes into play when the beneficiaries receive the property that is divided and distributed among them by the executor of the estate. The inheritance tax is not calculated as a whole but separately for each beneficiary, and they are responsible for paying the tax. For instance, suppose you have a property which values more than $2 million then the state may charge you a 5% tax on inheritance. As a result, if your father leaves you $5 million worth asset in his will, you will have to pay tax only on $3million, which is $150,000. These details need to be filled in the legal papers provided by the tax department of the state. Not all assets are taxed some of them are exempt, and if you are married, you do not pay tax on anything that you leave together to each other. If the married couple leaves their home that worth a million quid to their kids without a tax but it has to be your family home and it has to be left directly to your children or grandchildren, so the first thing you need to do is to make a will to manage the tax liability. A professionally drawn up will is the foundation stone of your tax planning and one of the greatest factors that decide the size of your inheritance tax bill is who is going to inherit from you. In some states like Kentucky, the son’s daughters and parents are exempted from paying the inheritance tax, or they need to pay the lowest tax rate in states from where they are not exempted.

Federal estate tax exemption
According to the 2017 inheritance tax laws, the federal deducts $5,490,000 from the value of the beneficiary’s property. Thus, if the person owns an estate which is lesser than the amount, he or she is on no due to the federal estate tax. You pay an inheritance tax of 40% on everything that you own. For example, if your estate is worth 8 million dollars, you pay 40% of the value above $5,490,000. And the total estate tax that you owe to pay would be $1.004 million dollar calculated from: $2,500,000 x 40% = $1,004,000.

Relating to state estate taxes, today only a few territories charge them such as Columbia, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Rhode Island, Tennessee, and Washington. If at all the descended from whom you have inherited did not live in any of these states or own a property in any of these states you are not liable to pay a state estate tax even if you being the heir living in one of these states. And on the contrary, if the descendant lived in one of these state and own properties in more than two states then the value of the estate must exceed the state estate tax exemption before any state taxes are owed.

In recent times, the state estate tax exemptions range from as low as $675,000 to a high of $5,490,000 in many states. According to the laws if the estate is worth more and if you owe state estate taxes, you will receive the inheritance check only after you pay all these taxes on due, so the amount that you paid will be deducted from by the taxes that were on due.

If you think that you lose a lot of money, there are things that you can do to reduce your estate tax liability. Suppose your spouse is a US citizen you can leave your property absolutely tax free because of unlimited marital deduction, and if your spouse if not a US citizen, he or she will not be qualified for the deduction.

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