Inheritance and Estate Tax - Do You Have to Pay It?
An inheritance tax is very different from an estate tax that covers the entire amount of an estate after someone dies. With this type of tax you are only charged for the portion of the estate that is actually left to you. Depending on where you live, the inheritance money may be taxable income.
There are only a handful of states that are still enforcing this type of tax. Most states have done away with it completely but the following states continue to collect on all inheritances: Tennessee, Pennsylvania, Oregon, New Jersey, Nebraska, Maryland, Kentucky, Kansas, Iowa, and Indiana.
If you do live in a state that was listed, the amount of tax you will be charged will depend on the laws on the books of your particular state. It is a good idea to seek professional advice so you pay the right amount and do not find yourself in trouble down the road.
How each state determines the amount of the estate tax to be paid depends on how much money you were left and your relationship to the person who has passed away. The closer you were in blood relations to the person, the less your taxes are likely to be.
Since you already have the right to the money owned by your spouse, most states do not charge a tax on money left from one spouse to another.
Similarly, you will pay considerably less if the deceased was one of your legal parents. Most states take a deduction off the top which is not taxable, and then charge a lower estate tax on the remaining amount. The percentage of the tax will be lower if parents and children are involved.
In the event someone who was not your blood relative or spouse leaves you money, you will have to pay considerably higher amounts of taxes. The exact amount will be determined by the guidelines in your state.
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