You might feel confident that your estate will not exceed the estate tax threshold but are you aware that that you or your beneficiaries can still end up paying an inheritance tax?
In this article we’ll tell you more about federal estate tax and inheritance tax.
What is the difference between federal estate tax and inheritance tax?
And is it possible that you’ll need to pay both? The answer is: maybe.
Some states have an inheritance or estate tax. This means that you or your beneficiaries might be liable for state tax after you receive money or property from the estate of a deceased person. Importantly, an inheritance tax is the responsibility of the beneficiaries not of the estate. See the chart below to see if your state currently has such a tax.
The federal estate tax, however, applies to all estates regardless of what any state residency issues. The estate itself is responsible for this tax, not the beneficiaries. The majority of estates in the U.S. have no applicable estate tax. Currently, only estates with a value greater than $11 million are responsible for the federal estate tax.
Am I subject to an inheritance tax?
In twelve U.S. states you must pay an estate tax. Six states impose an inheritance tax. And in Maryland you have to pay both. The chart below shows more details.
Am I a subject to the federal estate tax?
The bad news is that every estate in the USA is subject to the federal estate tax. The good news is that only a few estates have to pay it. In 2018 the exemption is $11,180,000. Hence if the value of the estate does not exceed $11.18 million the estate will pass to its heirs and beneficiaries free from federal estate taxes. And if the estate exceeds this value, only the value over this amount will be taxed.
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Please note that tax laws change and we here at AfterVault are not tax attorneys and our advice is not a good sub.