Estate and Inheritance Tax Considerations

When a person dies the federal and state governments may impose taxes on the transfer of the property. This is true whether the person dies with a will or intestate. These taxes are calculated according to the rules of estate tax law. In some cases, the property received by heirs may also be taxed according to inheritance tax laws. The inheritance tax is usually determined by the amount of property received by the beneficiary, as well as by the beneficiary’s relationship to the decedent. Basically, it is a tax on the right to receive the property. Every state except Nevada imposes either an estate tax or an inheritance tax; some states employ both. Inheritance taxes are not levied in addition to federal estate taxes because the federal law allows an offset for the payment of state death taxes. The maximum taxes in states with inheritance taxes are:

  • Delaware 16%
  • Kansas 15%
  • Kentucky 16%
  • Indiana 15%
  • Iowa 15%
  • Maryland 10%
  • Massachusetts 16%
  • Michigan 17%
  • Mississippi 16%
  • Montana 32%
  • Nebraska 18%
  • New Hampshire 15%
  • New Jersey 16%
  • North Carolina 17%
  • Ohio 7%
  • Oklahoma 15%
  • Pennsylvania 15%
  • South Dakota 30%
  • Tennessee 13%

Currently, the estate of a decedent is liable for a tax if the estate exceeds $650,000. The United States has recently enacted new laws that will increase this amount in certain increments over the next several years. In calculating the value of an estate for tax purposes one starts with the premise that all property owned by the decedent at the time of death is potentially subject to tax. This amount can be modified by several factors:

  • The decedent’s debts
  • Certain transfers to charity
  • Certain transfers to the decedent’s spouse
  • Some casualty and theft losses

An intestate estate is the most exposed to estate and inheritance tax liability. The greater the value of the estate, the greater the tax burden on the estate—and potentially on the beneficiaries of the estate. This fact is a powerful inducement for many people to seek estate-planning advice. There are several methods to shield the value of an estate from estate and inheritance tax laws. Along with the creation of a will, some of these methods may include the creation of a trust, purchasing life insurance policies, and making transfers of property prior to your death, known as inter vivos gifts. Attorneys and accountants provide for more specific information about estate and inheritance tax rules.

Individuals who do have wills and believe they would distribute their property differently than their state’s intestacy distribution plan should consult their attorneys for advice on estate planning and wills. Likewise, if they believe they are the beneficia-ries of an intestate decedent’s estate, they should check with their own attorneys for information about the specific laws governing their particular situation and advice about how to proceed to claim their share of the estate. Intestacy laws differ in very significant ways from state to state; understanding their applicability to you may require the advice from an attorney.


Inside Estate and Inheritance Tax Considerations