Inheritance Tax Regulations
Few things are certain, other than death and taxes. While this rather fatalistic saying usually attributed to Benjamin Franklin is often quoted, the sentiment is nowhere more succinctly captured than in the various inheritance laws found throughout the country. Once you die, your property is probably subject to one form of tax or another. These taxes can be imposed by both state and federal laws.
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Terminology
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Inheritance laws are sometimes referred to as estate taxes, death taxes or both. However, there are differences between these laws. An estate tax, or a death tax, imposes a tax on a decedent's estate, or the value of the property he owned at the time of his death. Inheritance taxes apply to the property that passes from the estate to an inheritor. While these distinctions can sometimes be meaningless, they can also have practical consequences.
Who Pays?
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Inheritance taxes are paid by the person or organization that receives property distributed from an estate, as opposed to an estate tax, which is paid by the estate directly. These inheritance taxes can be imposed on anyone who inherits property, though many states recognize exemptions or limits. For example, the state of Indiana categorizes inheritors by different classifications based on their relation to the decedent. Each class can receive inheritance exemptions of as much as $100,000 or as little as $100. These exemptions are tax free inheritances, while anything over that mount is taxed at different rates depending on the size of the amount and the class of the inheritors.
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State and Federal
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Like many other areas of law and taxation, the differences in inheritance taxes between the states can be significant. All states have either estate taxes or inheritance taxes, though only 11 have the latter. These are Connecticut, Indiana, Iowa, Kansas, Kentucky, Maryland, Nebraska, New Jersey, Oregon, Pennsylvania and Tennessee. Further, there is also an estate tax imposed by the federal government. Though the federal tax is not technically an inheritance tax, it does impose taxes on property following someone's death.
"Pickup" Taxation
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Many states are phasing out their inheritance and estate taxes. Many states also employ the so called "pickup" taxation practice, whereby the estate and inheritance taxes are taken out of the estate tax paid to the federal government. This effectively means these states have no estate or inheritance tax, and the federal tax is the only one that will practically affect an estate or an inheritance.
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References
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