Death Taxes FAQ
Benjamin Franklin once noted that nothing is certain except death and taxes. In the case of so-called "death taxes," this sentiment finds its most elegant form. The use of death taxes has been around for a long time, and can apply any time a person with property dies. Though different state and federal taxes can be referred to as death taxes, and there are a variety of ways these taxes can be imposed, they only apply once a person has died and left property behind.
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Types of Taxes
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The phrase death taxes, sometimes used pejoratively, typically refers to estate taxes at the federal and state level, and inheritance taxes at the state level. Though the name implies a tax for dying, that isn't exactly the case. These taxes are levied against property and assets owned by an individual at the time of his death. Even then, the taxes usually apply only if the property and assets exceeds a certain value.
Differences
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Whenever people die, the property they owned at the time of their death is referred to as their estate. An estate tax is levied--by the federal government and an increasing number of states-on an entire estate before it is distributed to individuals. A state inheritance tax, which 11 states still use, is levied on the portion of an estate that an individual, such as an heir, receives, according to Retirement Living.com. Both kinds of taxes are subject to legislative change. In fact, the federal estate tax was repealed for 2010, but is set to reappear in January 2011, unless Congress intervenes.
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Who Pays?
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When an estate tax is levied, the estate--through an executor, the administrator of the estate--is responsible for paying it. Typically, such taxes must be paid before the estate can be divided up and bequeathed to inheritors. Inheritance taxes apply only to those who receive property from the estate. Any individual who does is personally responsible for paying the tax.
How Much?
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Death tax assessments vary widely from state to state. Federal and state rates also differ. Other factors include whether the state levies an inheritance or an estate tax, the total value of the estate, and even the nature of the relationship of an inheritor to the decedent. For example, in 2009 the federal estate tax applied only to estates worth $3.5 million or more. The tax was repealed for 2010, but if it reappears in 2011, it will be levied against estates worth $1 million or more. The Indiana inheritance tax is based on how much the person receives and her relationship to the decedent. For example, a direct descendant is exempt from paying any inheritance tax on the first $100,000; a brother or sister only has a $500 exemption, and may have to pay up to 15 percent of the inheritance in taxes, depending on the total value of the inheritance.
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References
- Photo Credit tax forms image by Chad McDermott from Fotolia.com
