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What is an Inheritance Tax?

A tax could be levied on inherited property, such as the massive Vanderbilt home.
An inheritance tax is a state tax on a person's inheritance.
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  • Written By: Michael Pollick
  • Edited By: Niki Foster
  • Last Modified Date: 26 November 2014
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At one time in American history, wealthy families with names such as Carnegie, Rockefeller and Vanderbilt controlled vast private fortunes. Whenever a senior Vanderbilt died, a younger Vanderbilt would immediately inherit his home and all the assets within. The federal and state governments could only tax whatever the estate chose to liquidate. In an effort to create a populist "share the wealth" policy, a progressive Congress decided to levy a new tax on anyone who inherited substantial property or other assets through a legal will, and the first inheritance tax was born.

In the United States, a state government collects an inheritance tax while the federal government collects an estate tax. Both work on roughly the same principle. Whenever an individual is named in a legal will as the recipient of assets from an estate, he or she may be liable for paying this tax to the state. This is not the same as taxes levied on the property itself, but due simply for the right to assume ownership. The inherited property is evaluated and, depending on its value and the inheritor's relationship to the deceased, a tax may or may not be levied.

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This is where the inheritance tax laws become very murky and controversial. Currently, this tax has more exceptions and exemptions than most other tax laws combined. First of all, the value of the property or monetary asset must exceed $1.5 million US Dollars (USD) in order to even qualify for the inheritance tax. This eliminates most inherited property immediately. "Class A" relatives, which include spouses, children, parents, and grandchildren, are also considered exempt. The worst case scenario would be for a favorite cousin to inherit his uncle's $3.5 million USD mansion in the Hamptons. The cousin would face up to a 50% tax on the property, which would mean an instant debt of $1 million USD or more.

Some people refer to this as a "death tax," but that is not an entirely accurate description. The taxes levied after an estate sale are for the value of the items sold — this would be considered a form of death tax. An inheritance tax is based on the value of an asset which may or may not be sold. The original intention of the law was to eventually reduce the wealth of robber barons and extremely rich private landowners.

Only a select number of citizens are affected by an inheritance tax, but it is still a highly-charged political issue. Other nations have eliminated or severely limited their own versions of the tax, but the United States government continues to keep some form of estate tax on the books. Eliminating it may help many of the country's wealthiest citizens remain wealthy, but the general population has little to fear from an this tax law.

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anon345636
Post 22

We inherited property from my aunt in the US. After probate of the will, we sold the property. We are aliens, or non immigrants in the US. Are we liable for the estate tax? The proceeds of the property will bring it to the Philippines. Please give me some advice on this matter.

anon225189
Post 20

I am currently living in my deceased parent's home (Dad died in 2006 and Mom died May of 2011). I was my mother's primary caregiver. I am secondary executor on the will (my brother is 1st). The house is to go the me and my four siblings, however, they are in agreement that I should live in the house, and that the house should go to me (since I moved home to care for both of my parents). I just recently lost my home (that I lived in and paid on for 14 years) to bankruptcy. The estate has not gone to probate yet.

My main question is, Can I get homeowners insurance on my parent's house, although it is not in my name yet. I had been paying my mom's policy, but I just received a cancellation notice (on her property) from her insurance company.

Please help. With my luck, the house will catch fire and I won't have insurance. everything I own is here, and I would hate to lose my parent's house (and the house I grew up in) to a catastrophe like fire! Please help!

anon74855
Post 18

My father died five years ago and my Mom died two weeks ago. I just found out that the insurance policy that is meant to pay for her funeral, pay off her debts and then be split between the six of us kids is actually in my dad's name as primary beneficiary and then my name as secondary beneficiary.

My brother is primary executor for the will and I am secondary executor. The amount of the insurance policy is less than $50,000 but there is also a loan against some of that. Will I have to pay inheritance tax on this money? Only a small portion of it will be mine to keep.

anon72648
Post 17

my father recently passed in January 2010 and my mother has passed eleven years ago, as well. it's just my sister and I that have both inherited my father's home. We just received a notice from the IRS for taxes due we were not aware of.

Second, my father was in the middle of a project to build solar homes, and the real estate agent that is associated with the project basically screwed my father over by taking $100,000 from a loan on a second property my father lost due to non payment of deed.

This agent promised my father that he would not lose his second property and that he would make sure of it but my father lost the home. I have paperwork that states that my father was supposed to receive a yearly interest of the money invested but he never once received a single dime. This agent took advantage of my father's weakness due to his illness. We have been trying to get in contact with him but he has ignored my calls and in the past he ignored my father's calls.

anon50536
Post 16

I am Scottish and my parents continue to live (and pay taxes) in the UK, whereas I live (and pay taxes) in the USA. Would I be liable to inheritance tax from the UK or USA?

anon44501
Post 15

I will inheriat from my son.s estate $5,402.43. will I have to pay any taxes on it?

anon37629
Post 14

I have lived in a home for over 10 years.

My brother put my name on the deed with tenancy of survivorship. He recently died. I have paid all of the upkeep, property taxes, homeowners insurance etc. His intent when he bought the place 10 years ago was to give me the home. The value of the property is $134,000.00 for my home. Now that the property has come to me, do i have to pay an inheritance tax? I do not have the money to pay the tax. I am a single parent and live in the home with my 2 children. I live in the state of nj.

patton
Post 13

My aunt recently passed. The estate is currently in probate. She has no children or living relatives other than my mother, my brother and myself. She left all of her investments (stock, bonds, etc.) to my 88 yo mentally challenged mother. As Personal rep to the estate, I am trying to protect my mom as we move assets to her. I am contemplating cashing out a sizable amount of investment $71+K and moving it into annuities, but I need to understand tax ramifications to mom if we cash out with the intent of purchase of annuities.

anon25731
Post 12

Is the money i receive as inheritance (&70,000)from France taxable and do i have to declare it as income? I am on Social Security and my husband is 100% disabled.

anon25520
Post 10

I received an inheritance of $50,000 from my sister who lived in Canada. She was a US citizen working as a landed immigrant.

I know there is no inheritance tax in Canada & I live in the US. Will I have to pay any US or state tax?

jeffgrippen
Post 9

I just found out that I had a relative in Africa that died in a car accident and I am the only living relative to receive the inheritance. Since I live in the U.S. what is the tax on that inheritance, and do I also pay an estate tax too?

leveer
Post 8

My uncle passed away late in February 2004, leaving me 40,000$ and 440,000$ total. I still have yet to receive this money, and all I have been told is that it would be taxed. I live in Canada, he lived in the US. I'm just wondering how I get that money, any help would be greatly appreciated.

maggie25
Post 6

I received an inheritance upon my mother's death in April 2007. I opened a US bank account to put the money in. I am American but live in France with my French husband of 17 years. Is this money taxable?

anon8781
Post 4

Is the money you receive from an inheritance taxable income?

anon1737
Post 2

what will i,as a sister, be liable for in taxes on an state from my brother that is totalled at $118,000 cash and $182,000 in real estate. i live in michigan.

anon883
Post 1

If I don't pay an inheritance tax, is the money taxable as income?

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