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While there is no federal inheritance tax, some states do require that some beneficiaries pay an inheritance tax.
Inheritance Tax vs Estate Tax
The biggest difference between the inheritance and estate tax is who pays.
Its based on the total value of everything the person owned when they died.
The federal government doesnt charge estate taxes unless your estate is worth over $13.99 million.
However, some states have an estate tax.
Each heir pays tax only on what they personally received.
These beneficiaries will receive a $1,000 exemption.
Lets say your aunt left you $50,000.
This would put your total tax owed at $3,060.
This could reduce your overall tax burden to $2,907.
Because tax law can be complex, it can be a good idea towork with a financial professional.
Gifting
you could reduce inheritance taxes by giving away assets while youre still alive.
Larger lifetime gifts use your federal estate tax exemption but remove future growth from your taxable estate.
Many states with inheritance taxes dont tax gifts made during your lifetime.
Trusts
Setting up certain trusts can help minimize inheritance taxes.
Charitable Giving
Donations to qualified charities are exempt from inheritance and estate taxes.
it’s possible for you to leave assets directly to charities in your will or create a charitable trust.
This provides both inheritance tax benefits and potential income tax deductions during your lifetime.
Most close relatives are exempt, and theres no federal inheritance tax at all.
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