The estate tax is paid by the estate before the assets are transferred, while inheritance tax is paid by a person after inheriting the assets. Beneficiaries and heirs pay inheritance tax. There is no inheritance tax at the federal level, but six states do collect an inheritance tax.
The estate taxis a tax on your right to transfer property at the time of your death.
It consists of a record of everything you own or what you have certain interests on the date of death (See Form 706PDF (PDF)). The fair market value of these items is used, not necessarily what you paid for them or what their values were when you purchased them. The total of all these items is your gross assets. Inclusible property can consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.
An inheritance tax is a state tax that is occasionally levied on property inherited from a deceased person. The person who inherits the assets pays inheritance tax, and the rates may vary depending on the size of the estate, as well as the relationship of the heir to the deceased. For estate tax matters, executors must use Form ET-14, Estate Tax Power of Attorney, to give one or more persons the authority to compel, compel, or appear on their behalf before the department. Most properties don't owe federal estate or gift taxes, because you can donate or leave substantial amounts of property tax-free.
If you have inherited money or property after the death of a loved one, you may be subject to an inheritance tax. This is a state tax on which the beneficiary (the person or persons who receive money or property from the estate of a deceased person) must pay. Unlike federal estate tax (where estate pays taxes), inheritance taxes are the responsibility of the property beneficiary. This tax is calculated separately for each payee and, as such, each payee is responsible for paying their own inheritance taxes.
Twelve states and the District of Columbia also charge estate taxes, but rules are different by state. If you think your estate will be large enough to generate federal estate taxes, seek advice from an experienced estate planning attorney who can help you classify your options. Today, 99.8 percent of estates do not owe any wealth tax, says Joint Taxation Committee. For more information, consult with an estate planning attorney located in your state, especially if you are moving from one state to another.
Monitor any changes in laws that affect you, perhaps by setting up online news alerts for the status relevant to you and the terms inheritance taxes and inheritance taxes. An estate tax is calculated on the total value of the assets of a deceased and must be paid before any distribution is made to the beneficiaries. Much of the money inherited by wealthy heirs would never face any tax if it weren't for wealth tax. It is appropriate that the people who have most prospered in this society help to preserve it for future generations through the tax revenues derived from their wealth.
If you live in a state that has a wealth tax, you're more likely to feel the rush that you'll pay federal estate tax. Even so, it is useful to know more about the different taxes associated with these assets, and who should pay them and when. For a discussion of how you can plan to avoid estate and gift taxes, including giving gifts and creating an AB or bypass trust, see Plan Your Estate or Make Your Own Life Trust, both by Denis Clifford (Nolo). While that means that any appreciation of equity assets over time will be taxed, it also protects against taxation on maximum values that have since dropped.
In addition, special inheritance tax provisions, such as the option of distributing payments over a 15-year period and at low interest rates, allow the few taxable properties that would face liquidity constraints to pay the tax without selling any agricultural assets. .