Death duties are the taxes assigned to the property of a person who has died. The tax may also apply if property is passed on before imminent death. Death duties can apply to the individual who inherits the estate as well. Some of the specific death duty taxes include estate tax and inheritance tax. They are also known as death taxes.
Estate tax is one of the most common kinds of death duties. In some countries, this covers both individual inheritances and the estate. It is a single tax on the estate of the deceased. The executor takes responsibility for paying this tax from the estate’s assets.
Inheritance tax is another kind of death duty. It is applied to each beneficiary of the deceased. If the inheritance is to be shared among multiple people, the tax is assessed according to the way the property is divided.
Death duties are applicable when the estate or inheritance reaches a certain value. It is imposed upon all inheritance received approximately seven years before the death of the individual. Though all beneficiaries must pay the tax, the children and spouses of the deceased will usually not have to pay as much.
The term death duties is a colloquial expression. It is not usually a part of official communications concerning the taxes, as it is not a legally-recognized term. The phrase is most commonly used in the United Kingdom and other commonwealth nations.
Over the years, an increasing number of inheritances have been given out well in advance of death. Sometimes this is done so that beneficiaries can avoid death duties. The practice has been seen particularly among wealthy individuals who have large estates to distribute. These early gifts are frequently given to offspring by parents and grandparents. Another common reason for distributing wealth before death is that longer life spans tend to prevent young families from receiving the windfall from an inheritance when it is most needed.
Some people will downsize or take out a mortgage on their property in order to avoid reaching the cut-off amount for death duties. Others will legalize common law partnerships, as spouses usually do not need to pay the tax. If paying the tax will be unavoidable, an individual may also purchase insurance to cover the amount so that beneficiaries are not left with the burden to pay. In some cases, these methods are too risky or not worth the effort to avoid the tax.