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Inheritance Tax Threshold Factors

Inheritance Tax Threshold

The inheritance tax threshold varies in different tax jurisdictions. There are also some factors which may influence the inheritance tax threshold, such as the relationship between the benefactor and the beneficiary.

In contrast to the estate tax, the inheritance tax is calculated on the value of the money, assets or property inherited on the day that the beneficiary takes control of those assets. The estate tax however, is calculated on the total value of the estate on the day the benefactor dies.

The inheritance tax threshold may apply on both the federal and state level, although some states do not impose the inheritance tax.

Inheritance tax planning can include a variety of ways to take deductions from inheritance tax. For example, children may receive tax free gifts during their lifetime, which would then be eliminated from the inheritance, reducing the inheritance tax burden.

In addition, those that inherit above the threshold may be taxed on a percentage of that value, as well as an additional tax on any monies that exceed the minimum threshold. It is sometimes beneficial to leave alesser amount to beneficiaries as they end up with more money due to a decease in taxes which will be applied.

Inheritance tax planning includes careful consideration of the tax laws in that jurisdiction. For example, the benefactor should examine the inheritance tax threshold, as well as possible exemptions, before completing their will.

NEXT: Ways to Avoid Inheritance Tax

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