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Last Updated on January 14, 2024
If you have a significant amount of assets that you want to pass on when we die, you may wonder how much your heirs will lose to the inheritance tax. Unfortunately, inheritance tax laws vary from state to state and If you are inheriting assets or property from someone, your inheritance may be subject to state taxes. Therefore, understanding how these apply to your location and impact your situation is crucial.
In this article, we’ll dig the basics of the inheritance tax and walk through different tactical approaches you can take to maximize your hard-earned gains you pass onto future generations:
But first, let’s start with the basics of what the inheritance tax is.
The inheritance tax is a tax on the transfer of assets from a person to their beneficiaries and is taxed to the beneficiaries of the assets. The tax is calculated on the value of the assets when they are gifted, and the tax rate is typically based on the value of the assets being inherited by the beneficiary, the relationship between the estate owner and the beneficiary, and the state they live in.
When a person dies, their assets are distributed according to the terms of their will, or if they did not have a will, according to the state’s laws. Depending on the value of the assets and the beneficiary’s relationship to the deceased, these gifts may be subject to paying inheritance tax.
There is no federal inheritance tax, but some states have a tax on inheritances. However, even in states with an inheritance tax, it does not apply to any assets distributed to their spouse, specific types of assets, and particular other beneficiaries based on each state’s rules.
Need some help to understand the most convenient tax planning structure to reduce your inheritance taxes? Our team of tax-planning experts can help!
The six states that impose an inheritance tax are:
Since Alaska is not a state that imposes an inheritance tax, the inheritance tax in 2024 is 0% (zero). As a result, you won’t owe Alaska inheritance taxes.
The inheritance and estate tax are taxes on the transfer of assets from one person to another, but they are assessed differently. The estate tax is imposed on the estate of the deceased person or the person passing on the assets before they are distributed to heirs, and it is calculated on the total value of the assets when they are passed on. On the other hand, the tax on estate inheritance is imposed on the beneficiaries of those assets when passed on.
Another critical difference between the inheritance and estate tax is that there is no federal tax, and only some states impose an inheritance tax. On the other hand, there is a universal federal estate tax, and some states impose a state-level estate tax.
There are several ways to maximize what you pass on to future generations and avoid or reduce the amount of inheritance tax owed. Here are the three key to consider:
The inheritance tax can be a significant burden for beneficiaries in some states. It is essential to understand if it applies to you, how it works, and the different strategies that can be used to reduce or avoid it. By understanding the differences between inheritance tax and estate tax and the specific rules of the state’s inheritance tax, individuals can plan to minimize the amount of inheritance tax their beneficiaries will have to pay.
Want to dive into inheritance taxes in depth? Contact our team for more information.
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