There are various different taxes that can be imposed on asset transfers. The federal government has its own tax code, and each state has the right to levy taxes as well. Exactly what you are exposed to is going to vary depending on a number of factors. These would include the state within which you live or own property, the relationship that you hold with the respective inheritors, and the amount of the asset transfers in question
Estate Tax vs. Inheritance Tax
You may assume that an estate tax and an inheritance tax are one and the same thing. In reality, these are two different forms of taxation.
An estate tax is levied on the entirety of the nonexempt portion of the estate in question. The whole or pie would be shaved down by this tax before the inheritors received their bequests.
There is a federal estate tax, and the amount of the credit or exclusion is $5.34 million in 2014. If the value of your estate does not exceed this figure, your estate would not be subject to the federal estate tax. If you are transferring more than $5.34 million, the portion that exceeds this amount could be subject to taxation if you do not implement tax efficiency strategies.
Some of the states in the union impose state-level estate taxes. As a result, it is possible to be exposed to the federal estate tax and a state-level estate tax. There are also those who are exempt from the federal tax, but exposed to the state tax, because state-level exclusions are typically lower than the federal exclusion.
Our firm practices law in the state of Indiana. We do not have a state-level estate tax in Indiana.
An inheritance tax is levied on transfers to each individual nonexempt inheritor. There is no federal inheritance tax, but there are seven states in the union that impose state-level inheritance taxes. Indiana has had an inheritance tax but recently abolished the Indiana inheritance tax.
Learn More About Estate and Inheritance Taxes
We offer free consultations to people here in the greater Indianapolis area, and we would be glad to assist you. You can request an appointment electronically through this website.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.