What is Probate Tax?

Daphne Mallory

A probate tax is not an estate tax or an inheritance tax. It’s a tax that’s imposed in some jurisdictions on the decedent’s estate when a will is probated. Some locations do not impose a probate tax because the tax law is often a local or regional law, and not a national law. Some types of properties are exempt from a probate tax, and some estates that fall below a certain monetary value are automatically exempt. Those values are codified in local and regional laws.

When someone dies, his estate must usually go through a legal process known as probate.
When someone dies, his estate must usually go through a legal process known as probate.

The property of any deceased owner often goes through a court process called probate. The probate court ensures that taxes and creditors are paid, and it disperses remaining property and funds to the beneficiaries according to the deceased’s will. The court has a duty to distribute the property according to local laws when the decedent dies without a will. In jurisdictions where a probate tax is imposed, taxes must be paid before the probate process can be finalized in court, unless the estate or portions of it are exempt.

Not every property or monetary fund is subject to a probate tax. To begin with, insurance proceeds and bonds that are payable to a surviving spouse, children, or another named beneficiary are exempt. The exception is when the named beneficiary is the estate, owned by the deceased. Property that is jointly held by the surviving spouse and the deceased, with the right of survivorship, is also exempt from probate taxes. Finally, laws in various jurisdictions exempt property that is valued below a certain amount, such as $15,000 in the Commonwealth of Virginia.

Someone wishing to be granted the right to administer the estate or act as executor is often prohibited from doing so until the tax owed is paid. Even if the deceased named an individual in her will to act as executor, that person has to be cleared by a probate court. When there is proof that a tax return has been filed and the tax paid according to the current tax rate, the court can grant administration rights.

Intangible assets are subject to a probate tax. These include bank and brokerage accounts. The rules may vary for resident and non-resident decedents. For example, a non-resident decedent may be able to avoid taxes on stocks and other intangible assets, but a resident decedent may not. Assets often do not need to be located in the jurisdiction for it to be subject to probate tax if the deceased is a resident. The person submitting the probate tax return often has to account for property located everywhere.

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