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Tax Laws Inheritance

Essentially, in the United States, there are two types of death duties typically called inheritance taxes. The federal government collects the primary death tax or estate tax which is based on the net value of the deceased's estate. The state can impose inheritance taxes which are usually based on the value of the shares received by the individual heirs.

Both types are levied as excise taxes on the right to transfer property at the time of death and both work roughly on the same principle.

Simply the right to assume ownership as an individual named in the will is enough to make one liable for inheritance tax to the state. This includes being a recipient of assets from the estate and not just the property itself. Based on the value of the inherited property and the relationship between the deceased and the inheritor, an inheritance tax may or may not be levied.

Since inheritance tax laws can be very ambiguous, this often works out to the good for the inheritors. As we stand today, inheritance tax laws have more exceptions and exemptions than other tax laws combined. If the value of the property or assets combined don't exceed US $1.5 million, they won't qualify for the inheritance tax so this eradicates most inherited property immediately. Spouses, parents, children and even grandchildren are considered immediate family or 'Class A' relatives which exempts them from inheritance tax.

In getting back to the term 'death tax' which some refer to as an inheritance tax, it's important to understand that they are not the same thing. An inheritance tax is based on the value of an asset which may or may not be sold while, for example, taxes which are levied after an estate sale in which items were sold constitute the term 'death tax'.

The reasoning behind putting taxation laws in place for inheritance, estate and gift taxes were originally thought to be a way to break up large accumulations of wealth but without harming the economy. However economic analysts proved by empirical studies that these forms of taxes had little to no impact on wealth distribution but instead provided a means for owners of large amounts of capital to transfer resources without paying taxes on them.

As of right now, federal estate tax is eliminated through 2010, but the law will revert back to initial levels in 2011 unless we vote to change them again.

Discuss It!

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Spouses, parents, children and even grandchildren are considered immediate family or 'Class A' relatives which exempts them from inheritance tax.

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