The government can collect a tax on the estate of your loved ones. The estate becomes the source of your inheritance money, and if it exceeds a certain value, you’ll need to prepare yourself to face an Estate Tax.
Your right to transfer property at your death is taxed. This estate tax surveys everything you own, and operates upon the fair market value of these items. Determining the sum of these items gives you the Gross Estate, and may include the property value of your cash, real estate, insurance policies, trusts, and additional accounts and assets.
An inheritance attorney may prove of particular value when determining the most important number involved: the taxable estate. Your taxable estate is the amount the estate can be taxed after all legal deductions have been accounted for and applied. These deductions may include property that transfers to a surviving spouse, mortgages and even administration expenses associated with the estate. For federal taxes, the 2015 estate tax exemption amount is $5.43 million. This means that if your estate does not exceed this amount (99% of the population), you will not owe federal estate tax.
On the state level, the following states and territories currently collect an estate tax: Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Rhode Island, Tennessee, Vermont and Washington. If you are inheriting from a decedent who did not live or own property in these states, then you will not owe an estate tax on the state level. If they did, each state will determine the tax-exempt threshold, ranging from $675,000 (New Jersey) to $5.43 million (Delaware and Hawaii). In 2013 the U.S. Supreme Court’s decision in United States v. Windsor also established the marital deduction for validly married same-sex couples, thus allowing property and assets left to a surviving spouse to pass without incurring estate tax.
Inheritance Tax must also be considered in the process. This is where location and relationships really become important. Currently only six states collect an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. If the decedent did not live or own property in these states, you are in the clear. And even if they did, if your inheritance is between spouses, you will be exempt from the inheritance tax, with the exception of Nebraska and Pennsylvania.
If you are inheriting money from a more distant relative or friend, receiving inherited money from a foreigner, or have a sizable portion of your inheritance coming from existing retirement accounts of the decedent, you will not be subject to a federal income tax, but there are additional considerations and reporting requirements an inheritance attorney can guide you through. Contact the experienced inheritance and estate attorneys at Christopher B. Johnson Law today!