What to Know About Inheritance Tax

An inheritance tax is a state tax that is paid by the beneficiaries of a deceased person’s estate. The amount of this tax is determined by several factors, including the relationship of the beneficiary to the deceased and the value of the estate. There are exceptions to this law and because of that reason, most Americans are exempt from paying an inheritance tax.

An inheritance tax is not a tax on the actual property, but a tax for the right to acquire ownership of the property by an heir. All of the assets willed to a beneficiary are taxed including money, property, personal belongings and even business investment interests.

The amount of inheritance tax an heir has to pay is determined by the value of the estate. The more money an estate is worth, the higher the tax amount will be. A tax of up to 50 percent can be imposed. Each beneficiary is responsible for paying his or her own taxes on the portion of the estate they receive in the will.

Immediate family members of the deceased including the spouse, children, parents, brothers, sisters and grandchildren are automatically exempt from paying an inheritance tax. Nieces, nephews, cousins, aunts, uncles and distant relatives are not exempt and must pay an inheritance tax on any property willed to them by the deceased. Friends and other acquaintances of the deceased are also required to pay an inheritance tax, if they are named in the will.

Another exemption specifies that an inheritance tax is imposed only if the estate exceeds $1.5 million. Any estate worth less than this amount will not be subjected to an inheritance tax paid by any of the beneficiaries. Most people fall under this exemption.