It seems like whenever an individual lands any sum of money, they can’t get quite get it into their hands without paying some sort of tax – and this is true even in death!
Are you confused? Let us clear it up for you. When a person passes away, the individuals named in their will who will inherit said person’s financial assets are levy to what is known as a death tax, or, alternatively, as inheritance tax. Individuals may also have to pay an estate tax if they are to inherit a deceased’s estate.
Want to get a better idea of all these taxes and just what they mean for those on the receiving end of the assets of a will? Well, we’ve got you covered, just read on! After all, no one wants to deal with financial mishaps following their decedents dying.
So, your loved one has just passed away, and you’re already being thrown under the bus and into the world of finances. No one wants that, and to make things better for you here’s a brief of the taxes that are applicable to inheritors of a deceased’s will:
- Death Tax
The death tax is a broad term, one that covers both the estate and inheritance taxes.
- Estate Tax
Estate tax is levied on the right of an individual to transfer their property after the said person passes away, and this certain tax can be implemented as both a federal estate tax and a state estate tax. Usually, however, estate is charged after deducting the estate tax exemption amount, making the total tax a smaller value.
- Inheritance Tax
While similar to estate tax, inheritance taxes are levied on the right of an individual to inherit a deceased’s property. One injunction that sets the inheritance tax apart is the fact that the surviving spouse of a deceased is exempted from paying this tax.
The Costs: Counting up the Numbers
The amount an individual ends up paying in death tax depends on a number of factors, including the total value of the deceased’s inheritance, the exemption level levied in the area, the relation of the individual to the deceased, and any policies that have been taken out.
In the United States, the average tax exemption level for estate tax ranges at $11.58 million for the year 2020. However, residents of certain areas – such as Oregon – are not met with quite so favourable terms, with exemption being as low as $1 million, and here, estate taxes can leave you dealing with some tight budgeting.
Exemptions aside, the maximum tax rate that is applied on inheritance is 40% according to 2020 regulations. Although, tax rates do tend to vary from area to area.
Similarly, whether or not the deceased individual has taken out a life insurance policy will also affect the tax return that has to be filed. See, while life insurance payouts are usually tax proof, there are some conditions where individuals are liable to pay the tax. This includes instances where more than two people are involved in the insurance package, when the estate amount is greater than the estate tax limit, and when a profit is made from surrendering the policy.
So, there you have it, a basic rundown on the metrics of the death tax. Remember, it is always advisable to seek consultation from a financial advisor so that your inheritance and estate tax matters can be dealt with with the utmost diligence. The best financial advisors will make sure your taxes don’t leave you with nothing behind while making sure that the tax is paid in the first place. So, before you pay the tax, see that you know the tax!