Inheritance Tax Definition

You can avoid losing assets by planning ahead for inheritance taxes.

Inheritance taxes, sometimes called death taxes, can affect the amount of money an individual inherits after the death of a relative. Some of these taxes can be avoided through proper planning.

Description

An inheritance tax is a state tax levied on individuals who inherit an estate. While it is not technically considered a tax on the estate, the amount of tax the heir pays is calculated based on the value of the portion of the estate he receives.

States and Rates

As of January 2010, the following 11 states have imposed inheritance taxes: Connecticut, Indiana, Iowa, Kansas, Tennessee, Kentucky, Maryland, Nebraska, New Jersey, Oregon and Pennsylvania. The tax rates ranged from 39 to 55 percent after deductions.

Misconceptions

Many people confuse inheritance taxes with estate taxes. While these terms are similar, estate taxes are imposed on the estate itself, while inheritance taxes are charged to the person receiving the estate.

Future

As of 2010, state and federal governments are working to reduce the amount of required inheritance taxes. In the meantime, families can minimize the loss of assets by purchasing dual life insurance policies and passing inheritance money to children in smaller, tax-free portions each year.

References

• 1800Probate: Difference Between an Estate Tax and an Inheritance Tax
• Retirement Living: Taxes by State
• The Free Dictionary: Inheritance Tax
• Investor Glossary: Inheritance Tax