Most people do not want to think about inheritance tax because it means that someone close to them has passed away. However, it is important that you know all about inheritance tax and how it could affect you. There is a lot of information all about inheritance tax that you can look at, but you should focus on how the tax will affect your inheritance.
State Inheritance Taxes
The good news for most people is that they will generally not have to worry about inheritance tax unless they live in 6 states. This is due to the fact that only 6 states actually collect inheritance tax. These states are Kentucky, Pennsylvania, Nebraska, Iowa, Maryland and New Jersey.
It is important to note that in these states, if the property is being passed to a surviving spouse, there will be no inheritance tax. Additionally, only Pennsylvania and Nebraska will collect inheritance tax on assets passed on to children and grandchildren. This can come as a relief to many people who worry about the tax they will have to pay.
When looking at these laws, you will need to note that the tax laws will only relate to inheritance from people who lived in the state. If you reside in one of these states but receive an inheritance from someone who lived outside of these states, you will not have to pay inheritance tax.
State And Federal Estate Taxes
While you might not have to pay inheritance tax, there is a chance that you might have to pay estate taxes. In regards to the federal estate taxes, there is an estate tax exemption for estates that are valued below a certain amount. The amount will vary each year but has been over $5 million for the last few years. This means that if the estate that you inherit from is valued at less than this amount, you will not have to pay federal estate taxes.
In regards to state estate taxes, there are on a handful of jurisdictions which collect them. These jurisdictions will include Washington, Delaware, Tennessee, Hawaii, Connecticut, New York, Vermont, Maine, the District of Columbia, Rhode Island, Oregon, Massachusetts, New Jersey, Illinois, Minnesota, and Maryland. As with state inheritance tax, if the person you are inheriting from did not live or own property in these states, you will not have to pay the estate tax. The estate tax exemption for state tax will vary depending on the state from very low to very high.