What are the Different Inheritance Tax Exemptions?

Ken Black

Inheritance tax exemptions may include things such as minimum tax exemptions, family exemptions, and charitable exemptions. The exemption level for family members is generally higher than it is for non-family members. Thus, it is often easier and more financially beneficial to bequeath property to family members, rather than unrelated individuals. Inheritance tax exemptions may also apply to money or property given to charitable organizations, generally non-profits serving a community need.

Lawyers and estate planners often look for ways to help clients distribute assets in such a way that beneficiaries can escape some of the tax consequences.
Lawyers and estate planners often look for ways to help clients distribute assets in such a way that beneficiaries can escape some of the tax consequences.

Before getting further into inheritance tax exemptions, it is important to understand the difference between an inheritance tax and an estate tax. An inheritance tax is one that individuals receiving property from an estate must pay, and is calculated by looking at the value given to each recipient. An estate tax imposes a tax on the total value of the property, which is generally paid by the executor of the estate.

One of the most common inheritance tax exemptions is the spousal exemption. This allows the spouse of the deceased to receive the property at a much lower tax rate than nearly anyone else. In most cases, the exemption applies 100 percent to the entire estate, meaning the spouse will owe no inheritance tax at all.

The family inheritance tax exemption is another common claim. In such a case, the individual family members may be exempted from taxes up to a certain value, or the taxes may be imposed at a discounted rate. This is most common when a parent is leaving property to a child. The family exemption could also apply to other family members, depending on the laws of the state or jurisdiction.

Inheritance tax exemptions based on familial relationships may be different based on what that relationship actually was. For example, a father giving property to a son may have a different exemption level than an uncle giving property to a nephew. Check with the state or jurisdiction in question to find out how exemptions are applied.

Another common exemption for inheritance taxes is the minimum tax threshold. In this case, nobody receiving property from a deceased individual owes money as long as the value stays below a certain level. This is especially useful for those who may not have large estates and want to leave property to others without it being a burden to them. It may also be useful for those who have larger estates, but want to give property to many different individuals.

For charities receiving property from an estate, there could also be some exemptions or allowances made for them. Therefore, charitable organizations often are a popular choice for many wanting to leave gifts behind. Organizations may still be required to fill out forms declaring the value of the gift, but they may not be liable for taxes. Generally, the charitable organization must be a non-profit agency in order to claim a charitable exemption.

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