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of an estate is currently under the Federal inheritance tax exemption because the law that governs those taxes was repealed.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inheritance tax exemption, the law may allow estate taxes and inheritance taxes to be retroactive to when the law was repealed.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.