Many people do not know the difference between an inheritance tax and an estate tax. First, before any taxes are paid, the executor of the will divides the assets according to the deceased wishes and distributes them to the beneficiaries. The amount of tax is then calculated for each beneficiary separately.
An exemption amount for inheritance taxes is normally set a $1 million, and only the amount exceeding that is taxed leaving only 2% of taxpayers paying inheritance tax.
The inheritance tax differs from the federal estate tax because the federal estate tax charges a tax on the “total value” of the deceased assets, less an exclusion amount. It is then paid out of the deceased person’s assets before distribution to beneficiaries. Taxes are paid by the estate, instead of the beneficiary.
Spouses and charitable organizations are automatically exempt from inheritance taxes. Children other dependents or grandchildren might also qualify for an exemption, partial exemption, or pay the lowest rates.
The highest tax rates are usually collected on those who do not have a family relationship with the deceased person. Check with your trusted CPA or tax advisor to make sure your inheritance and federal estate tax are calculated correctly.
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