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Home » Estate Planning » Inheritance Planning » Will My Heirs Face Inheritance Taxes?

Will My Heirs Face Inheritance Taxes?

February 5, 2014 by John Potter

There are different types of taxes that can enter the picture when you are transferring assets. Many people have heard of the estate tax, and they assume that an inheritance tax and an estate tax are the same thing.

In fact, these are two different types of transfer taxes.

Estate Tax

An estate tax is levied on the entirety of an estate before it is distributed among the heirs. There is a federal estate tax that is applicable in all 50 states.

The maximum rate of the federal estate tax is 40 percent. The amount of the credit or exclusion in 2014 is $5.34 million. If you are not transferring assets that exceed this amount, you do not have to worry about federal estate tax exposure.

There are some states that impose state-level estate taxes. We have offices in North Carolina and Kentucky. Neither state has an estate tax at the present time, though North Carolina had an estate tax through 2012.

Inheritance Tax

There is no federal inheritance tax, but a handful of states do levy inheritance taxes. North Carolina does not have an inheritance tax, but Kentucky does have one.

An inheritance tax is levied on each individual transfer to nonexempt heirs. The good news is that close relatives are typically going to be exempt. In the state of Kentucky, spouses and descendants are exempt from the inheritance tax.

Whether or not your heirs will face an inheritance tax is going to depend on two things. One of them would be the state within which the property is held. The other would be the relationship that exists between you and each individual inheritor.

Transfer Tax Efficiency

If you are exposed to transfer taxes on the federal level, the state-level, or both, you should certainly take steps to gain transfer tax efficiency. A 40 percent federal estate tax can certainly play havoc with your financial legacy, and the Kentucky inheritance tax can also take a toll.

You do not have to resign yourself to paying these high taxes. You can mitigate your exposure if you take the right steps in advance. There are various different solutions that can be implemented. The optimal course of action will depend on the unique nature of your circumstances.

The best way to learn about tax efficiency strategies would be to discuss them in detail with a licensed estate planning attorney. If you reside in the vicinity of Ashland, Kentucky or the Charlotte, North Carolina area, we can be of assistance.

Our firm offers free consultations to people who want to preserve wealth for the benefit of their loved ones. If you would like to have all of your questions answered, contact our firm to set up an appointment.

To learn more, please download our free will my heirs be forced to pay an inheritance tax here.

 

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Filed Under: Estate Planning, Inheritance Planning, Taxes Tagged With: inheritance tax, transfer taxes

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