Benjamin Franklin said that only death and taxes are certain in this world. How about death and taxes are combined with each other?
But don’t worry, most of you don’t have to pay inheritance taxes when you inherit assets from relatives or friends. Because there’s no such thing as federal inheritance tax, and only six states in the US have inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.
Inheritance tax is a state levied on those who inherit assets from a deceased person. Inheritance taxes are paid by the inheritor. Whether you have to pay inheritance tax is decided by the state in which the benefactor lived, not where you live. For example, if you live in New York city and inherited your uncle’s asset who lived in Maryland, you may be asked to pay for the inheritance tax. What’s more, you have to fill a state tax form on time, otherwise the state is going to look for penalties.
The good news is that there are exemption amounts, which vary from one state to another. Here is the threshold at which inheritance tax may be imposed.
Nebraska ($10,000 -$40,000)
New Jersey (None to $25,000)
Pennsylvania (None to $3,500)
Different states have different inheritance tax laws as well. For example, in Pennsylvania, no inheritance tax is imposed to a surviving spouse or child under 21 years old.
Inheritance tax rates are usually from 15% to 19%, according to the relationship you have with the deceased. In general, the closer your relationship to the deceased, the lower the rate you have to pay.
If you happen to live in one of those states which have inheritance tax, then, good luck. There are many ways to reduce inheritance taxes. For example, put it into a trust.