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A Background of Inheritance Taxes

A Background of Inheritance Taxes

Inheritances taxes are either collected from an estate of from the individual that inherits from the estate. Like other taxes, inheritance taxes are determined as a percentage of the total value of an estate, on the day that an individuals inherits from the estate. In some cases, an inheritance tax is also known as an estate tax. In the United States, there is a distinction between an inheritance tax and an estate tax. 
An estate tax is generally the tax imposed on the actual estate, before anyone inherits from the estate. Whereas, an inheritance tax is imposed on the individuals that inherit from an estate. The inheritance tax would generally be calculated on the vale of inherited property, on the day that an individual inherits said property, or the day that the benefactor passes away.
Some states impose an inheritance tax on the beneficiaries of an estate, while others do not.  There are also jurisdictions that impose both an inheritance and an estate tax. While some states impose an inheritance tax, the federal government imposes an estate tax. The estate tax is set to expire in 2010 and it is difficult to ascertain what may result from the expiration of the estate tax. Many States have begun to allow their inheritance tax statutes to lapse or expire. However, the federal government is not likely to allow the estate tax to expire. 
The expiration could result in Congress passing an estate tax that could be levied against a larger percentage of assets. In fact, many members of the tax reform movement believe that is likely to happen. However, the lapse could also result in a lowered percentage of estate taxes, or a complete lack of an estate tax. Although the tax may expire, that does not mean that the government cannot in fact, tax an estate afterwards.  Beneficiaries are likely to be in tax limbo until the issue is resolved by Congress. Yet, beneficiaries are likely to be aware of what their inheritance tax burden will be in their state.
In most jurisdictions, an inheritance tax is dependent on the type of assets and property that an individual inherits. Another factor in inheritance taxes is the beneficiaries relationship with the deceased. Generally, the closest relatives, children and parents, are taxed at a lower rate than other beneficiaries.  
In most cases, beneficiaries will be responsible for an inheritance tax burden based on the total value of inheritance. Inheritances tax burdens can end up being a large percentage of inherited property. Often, those percentages are determined based on the size of an estate. Like many tax brackets, inheritances tax percentages tend to increase with the size, or value, of an estate.

Credits Against Inheritance Tax

Credits Against Inheritance Tax

Due to inheritance tax law, the federal inheritance tax rate will change in 2011. However, the federal inheritance tax rate will still allow estates to take credits against inheritance or the value of an estate. One such credit is an allowance for benefactors to leave property or money of a certain value, to be passed to heirs tax free. 
The Unified Gift and Estate Tax Rates, allow family members to both gift and bequeath property of a certain value tax free. Inheritance tax law allows parents to leave their children one million dollars tax free beginning in 2011. They are also allowed to gift one million dollars to heirs, tax free in their lifetime. Money inherited in the 2010 tax year is currently tax free, unless next years federal inheritance tax rate is applied retroactive.
There are several credits against inheritance tax which are allowable according to inheritance tax law. In some circumstance, money or property that has already been inherited in the last ten years, and incurred an inheritance tax, can be exempt from further inheritance tax. In other words, the same property inherited more than once in ten years, only incurs the Federal inheritance tax rate the first time that property is inherited.
In 2011 the maximum estate tax credit for heirs is set to be one million dollars with an additional maximum lifetime gift tax credit of one million dollars, unless Congress acts before the sunset clause goes into effect on January 1, 2011. That means that parents may gift one million dollars to a child during their life, tax free, in addition to allowing the child to inherit up to one million dollars tax free. Due to an inheritance credit, that child could then bequeath that money to another individual tax free, if they should pass away in the proceeding ten years.
Inheritance tax law will be changing within the next year. Their is a freeze on the federal inheritance tax rate at zero,for the year 2010. However, once the new tax year begins, federal inheritance tax rates are set to revert back to those that existed in 2001. 
As it stands now, the laws, including credits, are set to revert back to those that existed in 2001 lowering exemption, deductions and credits which increases tax burdens. Those laws actually lower the maximum exemption from 2009 and the amounts that could be bequeathed to heirs tax free. Unless Congress acts soon, many credits will be lowered, thereby increasing the federal inheritance tax rate and greatly altering other inheritance tax laws.

The Controversy of Estate Tax You Must Know

The Controversy of Estate Tax You Must Know

There are many that argue that an estate tax or the inheritance tax prevents families from continuously passing on their wealth tax free. Arguments on both sides say that an inheritance tax and an estate tax are progressive taxes. Because the inheritance tax is a progressive tax, the tax burden is equally distributed according to a percentage of wealthy. In contrast, regressive taxes tax those with lesser wealth at a higher rate as a percentage of income.  
The Federal inheritance tax can be as high as fifty percent, when it is active. That means that benefactors only actually leave beneficiaries half of what they intended to leave them. Individuals that work hard all of their lives, with the intention of leaving their wealth to family members, often find that a majority of the accumulated wealth is contributed to a tax burden.
There are those that argue in favor of the estate tax or inheritance tax as a replacement of income tax. Income tax is said to penalize workers and discourage employed from working harder to get a better salary. An increase in salary can put taxpayers in the next tax bracket, which increases their income tax burden, sometimes in large amounts, as a percentage of their salary. If the inheritance tax or estate tax were to replace the income tax, it is believed that employees would be encouraged to work harder so that they could invest more money and save for the future.
Just as in income tax discourages hard work, it is believed that tax free inheritance also discourages work in future generations because they become wealthy from their inheritance. By allowing individuals to keep their entire salary, taxes are only applied to the money that they earn and give away. In addition, some people claim that the inheritance tax and estate tax are simply imposed because nobody has the implicit right to inherit money and enjoy the benefits of inheritance which results form the hard work of others.
In contrast, the inheritance tax and the estate tax are said to discourage entrepreneurship because individuals believe that the money they make will not be given to future generations, but instead be taxed at high rate. The inheritance tax and the estate tax are also said to be costly because of the large percentage of revenue utilized to force taxpayers to comply with the tax. It is actually one of the least effective taxes when one examines the cost of compliance with the amount of revenue generated through the estate tax and the inheritance tax.
Although the inheritance tax and estate tax do not currently apply on a federal level, many beneficiaries are subject to those taxes in their state of residence. The debate as to the fairness of those taxes continues to rage on. Those that are beneficiaries or benefactors tend to be opposed to the tax. In fact, most of the wealthy believe that the tax unfairly places a tax burden on their shoulders. However, the tax is often favored by a majority of employed taxpayers in order to make up for the deficit in the income tax burden which unfairly taxes those with lower salaries.

Difference Between Inheritance and Estate Tax

Difference Between Inheritance and Estate Tax

The difference between the estate tax and the inheritance tax is quite easily defined. The estate tax is imposed on the value of the estate when the benefactor passes away. However, the value of that estate may be altered before any beneficiary inherits from that estate. There are some allowable deductions, such as funeral expenses, which lower the tax burden on the estate. 
Yet, if the value of the estate were to drop the next day, due to a stock market crash for instance, the estate tax would still be imposed on the value of the estate on the day the benefactor passed away. Whereas, the inheritance tax is imposed on the value of property a beneficiary inherits. If the beneficiary inherits only a portion of the estate, then the inheritance tax would be on the value of that portion of the estate.
The estate tax is imposed on the value of the estate, on the very day that the benefactor passes away. While some assets, such as stocks, may substantially increase or decrease in value, the tax is imposed on the value of the stocks, on the day the benefactor dies. In addition, the estate tax is levied after allowable deductions, such as the cost of funeral and any benefactor debt, have been deducted form the value of the estate. In many cases, estates are subjected to an estate tax on the federal and state level. Each state will have varying allowable deductions on the estate tax.
Inheritance taxes can also be reduced, or subject to exemptions. In many states, spouses, or children, can inherit money tax free, or face reduced inheritance taxes. In addition, spouses that share property jointly, are likely to be able to avoid the inheritance tax on that property. In addition, if a benefactor leaves all, or part of their estate to a charity, the charity can avoid the inheritance tax. In other cases, the beneficiary is responsible for the full inheritance taxes placed as tax burden on the specific amount inherited.
In some case, benefactors and beneficiaries may be subjected to the estate tax and inheritance taxes. However, due to a lapse in Federal laws, there is no federal estate or inheritance tax in the year 2010. In response to that lapse, several states have also allowed their inheritance taxes and estate taxes to lapse, at least for now.  The tax revenue from the estate tax and the inheritance tax is estimated to be very beneficial to the tax jurisdictions that impose them.

What You Should Know About Estate Tax

What You Should Know About Estate Tax

Estate taxes and inheritance taxes are two forms of taxation placed on the estate of deceased individuals. The estate tax is levied on the total value of the estate on the day that the benefactor passes away. There are certain deductions that can lower that total tax. For example, the total value of the estate will be reduced by the amount of costs associated with distributing the, as well as the funeral of the benefactor. The inheritance tax is levied against those that inherit property from the estate. 
The estate tax is paid by the estate and the inheritance tax is paid by those that actually inherit all, or a portion of that estate.  The taxes are generally imposed on the gross value of the estate. The Gross value is calculated by adding the total value of the contents of the estate on the day the benefactor passes away. If there is a significant increase or decrease in the value of the estate after that time, the taxes will not be effected. After calculating the gross value of an estate, there are some allowable deductions on both the state and federal level. 
There are allowable deductions for the costs associated with maintaining or administering the estate. In addition to deductions, there are also allowable exemptions. For example, most estates are exempt from the inheritance tax and the estate tax if the value of the estate falls below the maximum exemption value. In 2011, estates valued at less than one million dollars will be exempt for the estate tax. There are also credits that can be taken against both taxes. For example, children may inherit up to one million dollars tax free from their parents. That exemption is different than the lifetime exemption for gifts from parents, which is also one million dollars. Children may get a total of two million dollars from parents tax free.
Tentative taxes are imposed at a flat rate of a range of estate values. Generally, the range of values can be quite substantial. For example, an estate may fall within the range of twenty to forty thousand dollars and receive the same flat tax. However, the tentative tax also includes a tax as a percentage of any amount over the minimum in that range. 
If for example, the person inherited thirty thousand dollars they would have to pay the flat rate tax on that range of value, in addition to an added percentage tax on the ten thousand above the minim range. Once an individual has made determinations about tax rates, they must file the forms and pay the federal taxes within nine months of the benefactors death. There are some allowable extensions but there would be interest incurred on taxes due. State to state, the filing deadlines and rules differ from those at the federal level.
The estate tax and the inheritance tax are very controversial. There are some that argue it unfairly taxes the wealthy, or those that save their whole lives to bequeath money to future generations. They claim that hard work is punished when estate taxes can be as much ad fifty percent on the federal level, in addition to any state taxes that may be imposed. In some cases there is an estate tax and the beneficiaries must also pay an inheritance tax in their state of residence. That results in a large deficit of money actually passed on to beneficiaries. 
However, there are those that claim that an inheritance tax prevents future generations from being lazy by living off of the profits of others. In fact, many people claim that no one is entitled to the money made by previous generations. The debate continues and will likely gain fervor as the new inheritance tax laws go into effect in 2011. Those laws drastically reduce allowable deductions, credits and exemptions. The tax burden on estate and inheritance will increase significantly.

Background:
Inheritance taxes and estate taxes were previously allowing for inflation to be a factor in making tax rate determinations. In other words,as years passed,  taxpayers were being allowed to inherit larger amounts of money without paying taxes. In addition, the rates imposed on inheritance were increasing as estate or inheritance value increased, but the increases were related to inflation. When the new federal inheritance tax laws go into effect in 2011, those rates will revert back to those that applied in 2001. 
The exemption allowance will be lowered from three and a half million to one million dollars. There are many changes to the laws which will directly effect the amount of taxes beneficiaries pay. Even those that inherit in 2010, may find that the new laws will be retroactive. Although beneficiaries can inherit tax free this year, they may find that taxes are due next year, and those rates will be the ones that applied in 2001. Although an individual could have inherited three and a half million tax free in 2009, the rate of tax on three and a half million in 2011 will be very significant. The rate will likely tax that amount of money at fifty five percent.
Gross Estate:

A gross estate is the name given to the total value of an estate on the day that a benefactor passes away. The gross estate value can not change after that time. In other words, estates that fluctuate in value after the benefactor has passed away, will still be taxed at the gross estate value.  Taxes are actually applied to the value after all allowable exemptions, deductions and credits have been taken against the value of the estate. However, the base value of the estate is determined on the day of death. In fact, many states calculate the inheritance tax in the same manner. Inheritance tax can be imposed o the value of the inherited property on the day the benefactor died.

Possible Deduction of Estate Tax:

There are several ways that the value of a gross estate can be reduced, thereby reducing the taxes imposed against the estate.  First, the cost of administrating the estate is deducted from the value of the estate. In addition, any costs associated with the funeral of the benefactor, are also deducted from the value.  In essence, the costs associated with administering the estate, including those associated with funeral arrangement, are subtracted from the value of t he estate before it is taxed. 
If the benefactor carried a mortgage or other debt when they passed away, those payments will be deducted from the value of the estate. In fact, all debts must be paid by the estate before the beneficiaries can take possession of inherited property. Once all allowable deductions are taken against the value of the estate, the tentative estate tax can be determined. Deductions from inheritance tax are determined slightly differently, and can vary in each state.
Tentative Tax:

The tentative estate tax is imposed after all allowable deductions have made to the value of an estate. Those deductions may include administration fees associated with the estate. Each jurisdiction has other allowable deductions, but they vary within each state. After the value of an estate reaches an amount above the exemption limit, the tentative tax is applied. For example, an estate valued at over one million dollars, will incur the federal estate tax in 2011.
After that one million dollars in value has been surpassed, the value is placed within the appropriate bracket. There will be a flat, tentative tax applied to the amount based on the tax bracket. For example, an amount between one million and one million, two hundred and twenty five thousand dollars, may be taxed at a flat amount of three hundred and fifty thousand dollars. In addition, any amount over the minimum one million dollars, would be taxed at a rate of forty one percent. The total tax would be the flat rate combined with the forty one percent of any amount over the minimum in that value range. A difference of just a few dollars in inheritance can greatly effect the tax brackets in which the value falls.
Credits:

There are some estate tax credits as well as inheritance tax credits, that apply on the federal level. In addition, there are some credits available on the state level, which vary according to each states inheritance laws. In most cases, beneficiaries that are a direct heir of the benefactor, can inherit up to one million dollars tax free. 
There are also credits available if the beneficiary inherits property that has already been inherited in the last ten years. For example, if the beneficiary’s parent had inherited the money form their grandparent in the last ten years, they should be able to inherit that money without paying any taxes, if taxes were paid the first time it was inherited. There are several types of credits but beneficiaries must meet specific criteria in order to enjoy those credits.
Filing and Paying Estate Tax:

Although the current tax year has seen no Federal estate or inheritance taxes, that will change in the next tax year. In fact, those that inherited in 2010, may find that they owe taxes retroactive once the new Federal law goes into effect. Each state also has the ability to impose a separate estate or inheritance tax. 
In fact, there are states that impose both forms of taxes in addition to the Federal taxes. For federal taxes, the deadline to file is usually nine months form the date that the benefactor passes away. In some cases, beneficiaries may be granted an extension. However, if they are granted an extension, they will have to pay interest on the taxes owed as a result of inheritance or on the estate tax.
Estate Tax Rates:

Estate tax rates imposed by the Federal government are zero for the tax year 2010. The rates that will apply in 2011, will be similar to those that were imposed in 2001. Although exemption rates had been higher in 2009, the exemption rate will be significantly lowed in 2011. In fact, the amount that individuals will be exempt from paying taxes on, has fallen to less than a third of what it was in 2009. 
In addition, the rates of taxes due on any monies above the exemption amount, have also increased. The estate tax rate will be as high as fifty five percent in 2011. The taxes may be applied using the tentative tax which imposed a flat rate of taxes on an estate valued within specific ranges. After that flat rate tax is applied, there is a tax as a percentage of any value above the minimum range.

Exemptions:

Exemption rates for Federal estate taxes are set to change in 2011. Although the current rate is zero because their are no federal estate taxes for 2010, the exemption rate in 2011 will be lower than it was on 2009. Estate tax laws, rates, deductions and exemptions are set to revert to those that were in place in 2001. 
Since that time, exemption amounts had been increased, which resulted in estate and beneficiaries paying a significantly lower tax. However, when the exemptions and rates revert back to those that were in place in 2001, the taxes will be significantly higher for any estate valued over one million dollars. Each state also allows for exemptions of estates valued below a certain amount. In fact, some states do not impose an inheritance or estate tax no matter what the value is.

Avoidance:
There are few ways that the estate tax or inheritance tax can be avoided. If the total value of the estate is below one million dollars, the Federal estate tax will likely be avoided. However, individuals may still be subject to a state tax if it applies. Because of available tax credits, heirs of benefactors can sometimes avoid the inheritance tax. 
There is however, a limit on the amount they can inherit while avoiding the inheritance tax. The limit that heirs can inherit while avoiding the federal inheritance tax, is set to be one million dollars in 2011. Generally, spouses can also avoid the inheritance tax, especially if the inherited property included joint assets.
State Estate Taxes:

State estate taxes vary in each state. When the federal law lapsed in 2010, some states also allowed their laws to lapse. Some states impose both an inheritance tax and an estate tax. Whereas, some states impose neither tax. Generally each state has various allowable deductions, exemptions and credits. In many states, relatives can inherit property tax free but only of they are children, spouses, or grandchildren of the deceased. There are similar exemptions on the state and federal level. In most states, there is a maximum exemption and beneficiaries do not have to pay an inheritance tax unless the value of inherited property surpasses that maximum exemption amount.
Debate of Estate Tax:

The estate tax is said to help encourage a good work ethic among American workers. By taxing what the government considers to be free money, inheritance taxes are meant to prevent the perpetuation of familial wealth through the generations. When families are inherently wealthy, future generations are less likely to have a desire to work hard, because they are already wealthy. However, there is also the argument that inheritance and estates taxes will discourage entrepreneurship. 
Those that have the desire to own their own business and make a lot of money, may be less likely to do so because leaving the business or the profits to family members, means that a majority of the money will be passed to the government in the form of taxes.

What You Didn’t Know About Estate Tax Rates

What You Didn't Know About Estate Tax Rates

Estate tax rates vary depending on many factors. Although the estate tax and the inheritance tax are commonly referred to as the same thing, they are in fact technically different. The estate tax is imposed on the estate before any beneficiaries take control or ownership of their inheritance. Whereas an inheritance tax rate is the burden of the beneficiaries.  
Inheritance tax rates vary in each state and can be effected by certain circumstances such as exemptions. Inheritance tax rates generally vary according to the type of property and the relationship between the beneficiary and the benefactor. Inheritance tax rates are finally applied after all intervening factors have been accounted for.
In general, inheritance taxes are applied as a percentage of the total value of inheritance. The inheritance tax rate also changes in a cyclical manner, the same way other tax rates change.  So, the inheritance tax rate that applies this tax year, could change the following tax year. In 2010, the inheritance tax expired. Essentially the Federal inheritance tax rate for 2010 is zero. However, inheritance tax rates can be applied to inheritance at a later date. Taxpayers are currently unable to estimate what their inheritance tax rate would be, because no determination has been made for those rates. 
Previously, the Federal inheritance tax rates only applied after the estate surpassed a certain value. When the inheritance tax rates did apply, the rates would increase as the value of the estate increased. For example, a person that inherited less than forty thousand dollars in excess of the maximum  value threshold would be subject to an inheritance tax rate of twenty four percent of that excess. That would mean that the inheritance tax rate resulted in a tax of about eight thousand dollars on the amount inherited over the maximum exempt amount. 
Those that inherited more than three million dollars above that maximum, would face an inheritance tax rate of fifty five percent. For the beneficiary that inherits over three million in excess, that inheritance tax rate could result in a tax of one and one half million dollars. In 2009 the amount exempt from the inheritance tax was three million and five hundred thousand dollars. In 2011 that exemption amount is set to be significantly reduced to one million dollars.
Inheritance tax rates are based on several factors.Each state has their own laws on inheritance tax and the rates in each state are likely to be very different. In addition, each state will allow for specific and unique deductions which can greatly alter the rate. The federal inheritance tax rates have expired but are set to change in 2011. 
Those rates will likely be retroactive, which means they would be applied to those that inherited property in 2010. In order to pay the lowest inheritance tax rate, beneficiaries should be sure that they take all possible deductions before applying the tax to the value of the inheritance.

Filing and Paying Estate Taxes

Filing and Paying Estate Taxes

Taxes on inheritance can be imposed by the Federal and State governments. Generally, the Federal tax is refereed to as an estate tax ,whereas, the state tax is refereed to as an inheritance tax. 
Beneficiaries should be sure to consult local laws to ensure that they file and pay their estate tax in a timely manner. In addition, they will want to be sure that they calculate their tax on inheritance at an appropriate percentage, according to local and federal tax laws. The tax on inheritance should only be applied to the value of property after all allowable deductions have be taken. In some cases, beneficiaries may actually be exempt form paying a tax on inheritance.
Estate taxes are imposed on the total value of the estate on the day that the benefactor passes away. For example, if the benefactor owned stocks worth one million dollars on the day of their death, the taxes on inheritance would be on the one million dollars. Taxes on inheritance for one million dollars would apply even if the stock increase or dropped in price drastically the very next day. Whereas, taxes on inheritance of a specific beneficiary, are determined at a percentage of the value of the property they specifically inherited. 
Taxes on inheritance are the direct responsibility of the beneficiary, or the person that inherits the property. The beneficiary is responsible for filing the proper paperwork with the federal and applicable state government. Generally, beneficiaries have around nine months to file estate taxes. The forms required for taxes on inheritance and the estate, often require an accurate evaluation on the value of the property on the day that the benefactor passed away. The taxes may sometimes be deferred for about to twelve months after the benefactor passes away but the forms must be filed by the nine month deadline.
In order to pay the appropriate tax on inheritance, it is vital that beneficiaries have an accurate assessment done on the value of the property. The value of inheritance should not be guessed or estimated. There are many professionals that can handle the assessment at a reasonable rate. 
It is best to have a professional present in case the IRS contests the value of the estate or inheritance. If a beneficiary deciders to sell the property they would also be subject to a capital gains tax. That tax applies if they sell the property for an amount that is higher than the assessed value of the inheritance.
Filing taxes on inheritance can get rather complicated. The difference in each state’s laws often adds to the confusion experienced because of the legal process associated with inheritance. When an estate tax is imposed by the Federal government, the beneficiary can locate the appropriate forms online. That is usually true in each state as well. However, beneficiaries will find it advantageous to hire a professional to handle tax on inheritance to be sure that they take advantage of all allowable deductions.

Gross Estate Tax

Gross Estate Tax

The Gross estate tax is a tax imposed on the total value of an estate on the day that the benefactor passes away. The estate tax is generally imposed on the total value of an estate, regardless of what beneficiary inherits the property. Gross estate taxes are imposed on the estate, before an individual inherits all of, or a portion of an estate. 
Once the estate has been inherited, the beneficiaries may also be responsible for individual inheritance taxes based on the value of their specific inheritance. Although, most states no longer impose an inheritance tax. The Federal government does impose an estate tax on the total value of an estate before it is divided between the beneficiaries.
There are modifications available to reduce a gross estate tax burden. Those modifications can include a reduction for the value of an estate held by another party, such as a surviving spouse. In addition, the value of a portion of the estate that was disbursed prior to death, may also be used to reduce a gross estate tax. Those that take possession of any portion of the estate, prior to the death of the benefactor through a life estate, are responsible for a tax burden that is separate from that of the estate tax. 
There are also special laws that govern portions of an estate in which a surviving spouse is entitled to through rights of survivorship. Rights of survivorship differ in each state and can be dependant on the marriage laws in that state. For Federal tax purposes, rights of survivorship only apply to opposite sexed married couples due to the Defense of Marriage Act. Even same sex couples that are legally married in their state of residence, will find estates taxes at the gross estate tax rate because under federal law, their marriage is not legal. 
There are other exceptions that may allow those estates to escape the gross estate tax such as a spouse owning a portion of, or having a legal interest in part of the estate. Regardless of whether the Federal government recognizes that marriage, the legal rights of ownership will still apply.
There are many ways that a gross estate tax can be legally manipulated. Estate planning should always include a review of tax laws that would apply to the gross estate value.  Estates that will not incur an inheritance tax in some states, will still be subject to the Federal estate tax. The total value of inherited property will be reduced once the gross estate tax has been paid.

A Brief Overview of Inheritance Tax

A Brief Overview of Inheritance Tax

The inheritance tax is imposed on the value of property an individual inherits.Each state that imposes the inheritance tax, does so at different rates. In addition, the inheritance tax may be levied against some individuals, while not being imposed against others. For example, some states may allow spouses or children, to inherit money and property, free from the inheritance tax.  There are also states that do not impose the inheritance tax at all.
Background:

The inheritance tax has been imposed by specific states for years. However, many states have altered their policy on inheritance and estate taxes. For example, some states allowed their inheritance and estate taxes to lapse when the Federal estate tax lapsed in 2010. Although the federal estate tax is set to take effect again in 2011, some states may chose to leave the estate tax off the books. There are many debates associated with the inheritance tax and the estate tax. 
Many people claim that the tax is unfair because the money being inherited, has already been taxed as income. In addition, it is argued that the tax discourages entrepreneurship and hard work because benefactors believe that the government will get a lot of the money saved through years of handwork. Conversely, many argue that the estate and inheritance tax is fair because it taxes the rich and does not allow individuals to live off of the benefits of the handwork of others. In fact, many people say that inheritance tends to make people lazy, thereby discouraging them to work hard or lean towards anything entrepreneurial. 
State Variations:

Each state, as a separate tax jurisdiction, has the ability to levy taxes. In fact, each state can levy the inheritance tax at rates individually determined by that tax jurisdiction. The inheritance tax has historically been levied on the state level, against inheritance valued above a certain threshold. In addition, the inheritance tax may not be imposed against spouses, or descendants of the benefactor. Currently, the Federal estate tax and inheritance taxes have lapsed. As a result, some tax jurisdictions have begun to reconsider their position on the inheritance and estate tax. 
In some cases, the states are waiting to see how the Federal government responds next year. As it stands now, the Federal government is suppose to be reverting pack to tax rates that were imposed a decade ago, which were higher than they were last year. There are also some states that have decided to begin imposing the tax, to lower the state’s deficit. As states look to increase revenue, it seems more likely to states will consider taxes like the inheritance tax, even when they did not impose them in the pat. 
Difference Between Inheritance and Estate Tax:gross estate value of an estate on the day that the benefactor passes away. The value of the estate may change significantly before any beneficiaries actually inherit from the estate, but those changes will not be applied to the gross estate value. The value of the gross estate is only altered by allowable deductions. 
Those deductions include the expenses for the benefactors funeral and any money utilized to administer and distribute the estate. In addition, any debt, such as mortgages, must be paid before inheritance can be dispersed. The amount of money paid for that debt, is subtracted from the gross estate value before estate taxes are imposed. The inheritance tax is applied after the beneficiaries actually take possession of those items left to them by the benefactor.

Exemptions To Estate Tax to be Aware of

Exemptions To Estate Tax to be Aware of

There are some allowableinheritance tax exemptions for estates and the beneficiaries, but there are not many. In some states such as Kentucky, immediate relatives are exempt form paying any inheritance tax at all, no matter the value of the estate. However, that estate would still be subjected to Federal taxes.  
Exemptions can be beneficial if families take part in inheritance tax planning before hand. In some cases, it may benefit the benefactor and the beneficiary to transfer property before death. Inheritance tax planning can end up saving a large amount of money through an inheritance tax exemption. For 2010, the Federal Estate tax does not apply. However, in 2011, inheritance tax planning will involve a lot of factors, not the least of which is allowable exemption amounts.
The value of an estate must fall below one million dollars in 2011 in order to qualify for an inheritance tax exemption. Previously, in 2009, that maximum estate value for an inheritance tax exemption was set at over three and a half million.  In 2011, inheritance tax planning would include reducing the value of an estate to below one million dollars in order to avoid paying a larger percentage of inheritance taxes and estate taxes. If an estate is valued at higher than one million dollars, it will be subjected to a fifty five percent tax for any amount above the inheritance tax exemption. 
In 2010, the entire value of an estate is currently under the Federal inheritance tax exemption because the law that governs those taxes was repealed.  Inheritance tax planning for those that inherit property in 2010, should include saving for inheritance taxes that may be imposed when the 2011 law goes into effect. Even though there is currently a one hundred percent inheritance tax exemption, the law may allow estate taxes and inheritance taxes to be retroactive to when the law was repealed. Under the law that goes into effect in 2011, exemptions are allowed for  estates with a much lower value than those that enjoyed exemptions in the past.
In addition to the federal inheritance tax exemptions, each state also has allowable exemptions. Inheritance tax planning should take the unique and specific state inheritance and estate laws into account, in order to maximize the possible inheritance tax exemptions. In addition, the value of estates that fall below a certain threshold, often enjoy an inheritance tax exemption. Most of these exemptions apply to Federal taxes and many also apply to state taxes. Those that enjoy an inheritance tax exemption on the federal level, may find that  exemption is not allowed according to state laws. It is important that beneficiaries follow both state and Federal tax laws when taking part in inheritance tax planning.
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