My Inheritance Is All Going To Taxes
Inheritance tax, estate tax, or death tax is the tax the government applies to the estate of a deceased individual when the value exceeds a certain amount.
It is applied regardless of whether the estate or part thereof is willed to another person or persons. For taxation purposes, the taxable value of the estate is the ‘gross estate’ which may include more than what the individual owned at time of death.
In addition to the federal levy of death or estate tax, certain states also impose their own inheritance tax. Inheritance tax laws vary from state to state. One factor that is consistent with all states is that when the property is bequeathed to a close member of the family the tax is likely to be less than if it was gifted to a distant family member or friend. Most states regard a close family member to be the immediate relative like a child, spouse or sibling.
In some states, state inheritance tax is not applicable if there is no federal tax. But in some states inheritance tax applies whether or not federal inheritance tax is applicable.
Federal government taxes are payable out of the money left behind in the estate or monies realized from sale of the estate or part of it. State taxes on the other hand are imposed on the individual who inherits the property. It is the responsibility of the beneficiary to file appropriate returns and remit the applicable death tax.
As with all other taxes, there are a number of estate tax deductions applicable which can substantially lower the quantum of taxes payable. These are funeral and administrative taxes, claims against the estate etc. Those preparing their own inheritance tax returns are advised to keep such legitimate deductions in mind.
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