Do you have to pay taxes on inheritance?
Real Simple's recent article entitled “Here's Which States Collect Zero Estate or Inheritance Taxes” explains that inheritance taxes are levies paid by the living beneficiary who gets the inheritance. And both federal and state governments can apply estate taxes, which are levied against the assets that are bequeathed.
Just five states apply an inheritance tax: New Jersey, Nebraska, Iowa, Kentucky and Pennsylvania. There are 12 states that have an estate tax: Washington, Oregon, Minnesota, Illinois, New York, Maine, Vermont, Rhode Island, Massachusetts, Connecticut, Hawaii and the District of Columbia. Maryland collects both. As a result, there are 32 states that don't collect death-related taxes: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin and Wyoming.
To better estimate and project the possible outcomes, you should consider an intergenerational planning meeting. There are some families that like the transparency of establishing a trust. This can minimize fighting and avoid probate. Trusts are also taxed differently than individuals. There's more certainty about who will bear the costs.
There are families that gift assets, while an elderly or chronically ill person is still alive. These gifts can be subject to taxation, but there are exceptions for tuition and medical expenses. Gifts to children may also be excluded.
There's no one-size-fits-all approach to transferring valuable or sentimental assets. You can list the most important people and causes in your life. If that list has people in other states, it will be even more important to prepare everyone for their role and responsibilities with the help of an experienced estate planning attorney.
If inheritance tax sounds intimidating, start small with updating the beneficiary forms on your bank accounts and employer-led retirement accounts. Organize documents, such as insurance information and house titles and deeds. Make them secure but accessible to those who might need them, if you're unavailable.
Even if you're socially distancing, many estate planning attorneys offer consultations via video conferencing. There's no reason to delay another year to clarify your inheritance and estate plans.
Call a Thousand Oaks Estate Planning Attorney with questions. Book a Call
Reference: Real Simple (Nov. 24, 2021) “Here's Which States Collect Zero Estate or Inheritance Taxes”