inheritance tax

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Inheritance Tax

A tax on the money or assets that one inherits from an estate, as opposed to a tax on the estate itself. In the United States, inheritance taxes are levied at the state level and apply to the inheritors rather than the estate of the deceased. Generally speaking, inheritance taxes vary according to the inheritor's relationship with the deceased. For example, a spouse rarely, if ever, is responsible for an inheritance tax. It should not be confused with an estate tax, which is a tax on the estate before it is distributed.

inheritance tax

A state tax levied on the recipient of an estate rather than on the estate itself. The tax varies by state and its severity in a given state usually depends on the kinship between the deceased and the heir. Some states levy a tax on the estate instead of a tax on the amount inherited. Also called death tax. Compare estate tax.
How can I minimize inheritance tax?

Estate and gift tax law is in a state of flux. An estate planning attorney will have the most up-to-date information available to assist you in minimizing your tax liability. Avoiding probate should also be a goal. Joint ownership, revocable living trust, irrevocable trusts, and life insurance may be useful tools to avoid or eliminate the estate tax and costs of probate, but only an experienced estate planning attorney can help you decide which of these tools will suit your needs best.

Gloria Cole, Attorney, private practice, Weston, MA

inheritance tax

a form of WEALTH TAX imposed by the UK government on a proportion of a person's private assets when these assets are transferred to the person's beneficiaries. Currently (as at 2005/06) ‘chargeable assets’ such as houses, stocks and shares, etc. up to a maximum of £275,000 are tax-exempt. Above £275,000 inheritance tax is levied at a flat rate of 40%. Assets transferred more than seven years before the donor's death are exempt from inheritance tax, while assets transferred between three and seven years before death are taxed at lower rates.

Inheritance tax superseded earlier UK arrangements for taxing wealth, including estate duty or death duty and capital transfer tax.

inheritance tax


inheritance tax

See estate tax.

References in periodicals archive ?
However, the amount of the tax itself is only one factor in determining whether to plan to avoid the tax; the expense and complication for the estate of preparing the state estate tax return may itself be worth avoiding.
In many cases, the state estate tax exemption is lower than the federal estate tax exemption, which can cause an unintended state estate tax to be payable, while other states, such as Florida, do not impose an estate tax.
Second, in certain estates it may be appropriate to pass only the lower state estate tax exemption amount to a credit shelter trust and to rely upon portability for the balance of the deceased spouse's estate up to $5 million.
Large differences in state law in such areas as spousal elective share, state estate tax, and homestead disposition of property on death make it possible, if not likely, that estate planning documents prepared out of state are no longer appropriate.
It may be possible to avoid the state estate tax by placing the real property into a corporation or other similar entity (thereby changing the character of the property into personal property).
When a state has both an estate and inheritance tax, a state credit is often allowed against the state estate tax for the inheritance tax paid.
Large federal and state estate tax savings, as well as other transfer cost reductions and benefits, are possible if the grantor doesn't die during the trust term.
However, the payment of a state estate tax which is not exclusively tied to the federal state death tax credit could result in amounts in excess of the federal credit being paid to a state.
For an individual dying in 2001, the new rate schedule effectively eliminates Federal estate tax on an estate of $8,762,500, but does not eliminate the state estate tax.
This does not include state estate tax, where in some states the exemption amount already is set at $1 million.
If the decedent died in 2004, the northern state estate tax would not change ($30,333).

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