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What is Estate Tax?

Estate tax is a tax paid on the total value of a deceased person’s estate. The assets that can make up an estate include money, real estate, property, financial accounts, collectibles, and other assets. This value is calculated after the person passes away, and other factors like debts or credits can reduce the estate’s total value. The estate must pay estate taxes before distributing assets to beneficiaries.

When dealing with estate tax, it’s important to note that there is a federal estate tax as well as a state estate tax you may have to pay. Federal estate tax is set by the Internal Revenue Service (IRS). The IRS sets the threshold for taxable estates, and only estates that are above that threshold must pay estate taxes. This threshold changes yearly but has reached over 12 million dollars currently. This means that if your loved one’s estate is worth more than 12 million dollars, it will have to pay the federal estate tax before assets can be distributed.

There are only 12 states that currently require an estate tax. If you do not live in one of these states, you are not required to pay a state estate tax. If you have questions about estate taxes or inheritance taxes for your loved one’s estate, our experienced legal team can help. Call us today at 510-901-5375 for a free consultation.

What is Inheritance Tax?

Inheritance tax is a tax that beneficiaries pay on assets they receive from a deceased person’s estate. The amount of inheritance tax a person pays depends on how much they receive, not the estate’s total value. Currently, there is no federal inheritance tax because the IRS does not view inheritance as income. There are only six states that impose an inheritance tax. If you have received an inheritance and you aren’t sure whether you need to pay an inheritance tax, an estate planning lawyer on our team can help you check your state’s regulations.

Even if you are required to pay an inheritance tax, there are exemptions you may qualify for. Each state excludes you from the tax if you are a surviving spouse of the deceased, and some states have exemptions for surviving children and grandparents as well. When determining whether you need to pay inheritance tax or not, it’s important to check where the inherited asset was purchased. The state where the asset was purchased will determine if you need to pay the tax, not the state you currently live in. For instance, if you live in one of the six states that imposes an inheritance tax but inherit a house purchased outside of these six states, you do not owe an inheritance tax on that property.

What Are the Main Differences Between Estate and Inheritance Tax?

Estate tax and inheritance tax can be confusing since they both involve paying taxes on a deceased person’s estate. It’s essential to understand the differences between them if you are attempting to close a loved one’s estate or receive benefits from one.

Below are the major differences between estate and inheritance tax:

  • Federal vs. state level: Inheritance tax is only paid at the state level, while estate tax can be paid at the federal and state levels.

  • Who pays the tax: If you have received an inheritance, then you are responsible for paying the inheritance tax. However, the estate itself is responsible for paying the estate tax before assets are distributed. This is done by the executor after the deceased has passed.

  • Which states impose inheritance tax: Not all states require an inheritance tax, and there is no federal inheritance tax. This could mean that you do not have to pay an inheritance tax at all.

Which States Have Estate Tax?

While there is a federal estate tax, there are also a handful of states that impose a state estate tax as well. This means that if the estate is not exempt, there is a chance it could pay both federal and state estate tax. In most cases, if the estate is exempt from federal estate taxes, it will likely be exempt from state estate taxes as well.

Below are the states that have a state estate tax:

  • Connecticut

  • Hawaii

  • Illinois

  • Maine

  • Maryland

  • Massachusetts

  • Minnesota

  • Oregon

  • Rhode Island

  • Washington

  • Vermont

  • District of Columbia

Every state has its own estate tax exemptions. For more information about state estate taxes, contact our law office today.

Which States Have Inheritance Tax?

Currently, there are only six states in America that impose an inheritance tax. Some of these states have decided to do away with the inheritance tax and are slowly getting rid of it over time.

The following states require an inheritance tax to be paid:

  • Kentucky

  • Maryland

  • Iowa

  • Nebraska

  • New Jersey

  • Pennsylvania

If you live in one of these states or have inherited assets that were purchased in these states, contact our team today for assistance. We can help you determine whether you owe inheritance tax and how to pay it if you do.

Can an Estate Planning Lawyer Help Me?

Learning the difference between estate tax and inheritance tax can help you plan for the future. If you live in a state that requires estate tax or inheritance tax, our team will help you create an estate plan to lower your tax liability and reduce the amount you owe so your beneficiaries receive more of your assets. At The Singh Law Firm, we have years of experience in estate planning and helping our clients make the most of their estates. For more information and to receive a free consultation, contact us today at 510-901-5375.


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