An overview on inheritance tax
Who knew there would be taxes at the time of death also? These taxes, known by various names such as inheritances taxes, estate taxes, etc. and are collectively known as death taxes’. Morbid, eh? While at first glance, inheritance and estate tax might appear to be the same thing after all they are both collected as the result of someone’s death. However, the basic difference is that while estate taxes are assessed by the overall value of the deceased’s estate (including gifts given to beneficiaries), inheritance taxes apply to an individual’s bequest of any gift or property which literally means each and every kind of inheritance.
As of 2017, the six states of Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania only collect inheritance taxes, and there is no Federal Inheritance Tax at work.
How does an inheritance tax work?
Spouses and domestic partners While spouses of the deceased (who are surviving) are exempt in all six states levying inheritance tax, NJ also exempts any surviving domestic or registered civil union partners.
Children or parents When it comes to family and children, things get a little more complex. In certain states, such as Kentucky children (both daughter and sons) as well as parents are exempt from inheritance tax.
On the other hand, in New Jersey, siblings can inherit $25,000 tax-free, while no exemption is granted to an unrelated person.
Here are a few factors related to inheritance tax that you should know of.
- The term descendants stands for children or grandchildren.
- A minimum amount of tax rates apply for the closely related family members who don’t aren’t exempted from the tax.
- The tax rates are the highest for the unrelated individuals or organizations (excluding charitable establishments).
- Nebraska (1%-18%), Kentucky (6%-16%) and New Jersey (11% – 16%)has the maximum tax rate.
- Iowa has zero inheritance tax on beneficiaries who receive basic estates with a property worth less than $25,000.
- In all the 6 states, spouses are exempt from the inheritance tax.
- Nebraska and Pennsylvania are the only two states, where descendants don’t receive exemption from the inheritance tax.
