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Are Your Heirs Being Duped? Inheritance Tax Explained.

July 13, 2018 by Cheryl Proska in For Individuals, For Professionals, Power of Attorney

inheritance tax

The debate over taxes in Washington, D.C. may be tabled for now, but one key element still remains a topic of interest for the public – “death tax.” Are taxes truly robbing beneficiaries of money rightfully passed to them? Is there a reason for concern? Let’s take a closer look at what it could mean for you.

“What is this so-called death tax?”

The term is used to reference two state-level taxes charged in addition to federal tax:

Estate tax is a levy on your right to transfer property at your death. Since the person responsible for this cost is deceased, taxes are deducted from the property’s net value before getting passed to the beneficiary. Your heir is not responsible for this cost.

Inheritance tax is a levy on your right to receive property, gifts or trusts after another person’s death. Taxes are charged to any beneficiary accepting their inheritance. Your heir is responsible for this cost.

The good news? Many people won’t have to worry about this burden – a vast majority of states have moved away from these tax policies altogether. The bad news? One-third of states still collect – 12 impose estate tax, and 6 impose inheritance tax; only one state (Maryland) charges both.

Picture courtesy of TaxFoundation.Org

 

“I live in one of those states… Should I be worried?”

Concerned about estate taxes? You may not have to be.

State-level policies began raising exemption levels after federal estate tax exemption increased to $8.5 billion in 2012. Thanks to these revisions, estate tax only affects a small percentage of extremely wealthy families in the 12 imposing states.

Worried about inheritance taxes? That’s a bit more understandable.

If you reside or own property in Pennsylvania, New Jersey, Maryland, Kentucky, Iowa or Nebraska, and plan to leave behind an inheritance, it is subject to tax at your beneficiary’s expense.

 

“How much will be taken from their inheritance?”

The exact percentage is dependent on several factors:

  1. The state the deceased lived and/or owned property in.
    • Most states have a sliding scale to determine how much is owed – the larger the inheritance, the larger the tax bracket.
  2. The beneficiary’s relationship to the deceased.
    • Certain people, like as a spouse, may qualify as tax-exempt – however these exemptions vary from state to state.

 

Breakdown of Inheritance Tax Rates & Exemptions

Here is a state-by-state breakdown of 2018 rates and exemptions on the east coast:

**Click Each State Name to Open/Close Details**

 

(For details on Iowa, Kentucky and Nebraska, click here)

 

Register for our upcoming webinar

Want to lessen your tax burden? Attend our free upcoming webinar!

“Tax Reduction Strategies for the PA Inheritance Tax”

Tuesday, August 14 | 11:00 a.m.–12:00 p.m.

Click Here to Reserve Your Spot Today

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