Inheritance tax is imposed on the fair market value of an estate and charged to the individuals who inherit the assets. The amount of inheritance tax is determined by the appraised value of the estate and the beneficiary's relationship to the deceased.
Inheritance tax is governed by each individual state. Currently, ten of the fifty states within the U.S. impose inheritance tax. These include: Indiana, Iowa, Kansas, Kentucky, Maryland, Nebraska, New Jersey, Oregon, Pennsylvania and Tennessee. Texas is the only state which does not impose estate or inheritance tax.
The federal government imposes estate tax on all citizens of the United States. This is in addition to inheritance tax. However, every estate receives an estate tax deduction for all property received by the deceased's spouse. Additionally, the federal government allows a $2 million standard tax exemption for all other property.
State inheritance laws vary considerably. Many states adhere to federal estate tax law, while others operate independently from it. Some states do not charge inheritance tax unless it is subject to federal tax. Therefore, it's important to consult with a tax attorney to understand what, if any, inheritance laws are applicable.
Whenever an individual is named as a beneficiary and receives inheritance property from an estate, s/he may be liable for inheritance tax to the state. In essence, inheritance taxes aren't charged on the property, but for the right to assume ownership of the property. The property must be evaluated to determine its value. Inheritance tax is then collected on the appraised amount.
Inheritance tax is typically not imposed on inherited property passed to the surviving spouse. However, inheritance tax is imposed when property is passed to children, family or friends. For those who reside in a state that imposes estate taxes, the estate administrator is required to submit an inheritance tax return.
The inheritance tax return must include a list of estate property and its value, along with a list of outstanding debts. This is referred to as the gross estate. Once all the property is gathered and valued, any outstanding debts are deducted in order to compute the value of the estate each recipient will receive. Debts and taxes owed by the decedent must be paid from the estate before distribution is made to beneficiaries. Funeral and estate administration costs are usually deductible expenses.
A copy of inheritance tax returns must be submitted to the probate court in the county where the decedent resided. Estate taxes must be paid in full to the Internal Revenue Service within nine months from the date of death. If the inheritance taxes are not paid in full by the deadline, the balance due is subject to interest fees and late penalties.
Because of the complexities of inheritance law, it's imperative to seek legal counsel to ensure tax returns are filed in a timely manner and appropriate taxes are paid.
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Published on January 06, 2010 at 02:51 AM