Will You Owe Taxes on Your Inheritance?
The idea of inheritance tax is one that terrifies many people. Will you be able to keep the house in which you grew up? Are you going to lose your parents’ antique furniture? How are you going to pay all the bills that go along with the funeral, when the government comes to take their cut as well? Losing a loved one is already hard enough; having the government treat it like you’re making a profit is even worse.
The good news is that it’s unlikely you’ll need to pay major taxes based on your inheritance. However, there can be exceptions to this rule, which can have a measurable effect on what, if any, bills you pay. Let’s explore the specifics of inheritance and estate taxes, how they might affect you, and what you can do to hang onto your inheritance and memories.
Inheritance and Estate Taxes
The first thing to understand is that inheritance and estate taxes are not the same thing. In fact, the two are quite different. While estate taxes are taken out of the estate itself before inheritance is distributed, inheritance tax comes right out of your pocket. You may be subject to one of the two, both, or even neither, depending on the nature and value of the estate, and the planning that the deceased did before they passed.\
When sizable estates change hands after a death, the IRS takes a cut, taxing your right to transfer the property. The good news is that the IRS allows exemptions for up to $5.49 million per person on an estate. That means if you are married, you qualify for an exemption if the estate is worth less than $10.98 million.
If you inherit an estate that’s worth more than the exemption, you will be taxed at 40% of the estate’s fair market value. In addition, there are still fourteen states that collect estate tax; Montana, however, is not currently one of these fourteen states. Thus, it’s unlikely that you will have to worry about estate tax.
Inheritance tax, on the other hand, is a tax levied by state governments against the property, which is treated as a taxable asset. There is no federal inheritance tax, and there are only six states that charge inheritance tax. In addition, in most of these states, there are exemptions for spouses and children.
Once again, Montana does not have an inheritance tax, so for people who live in this state, there’s no concern about that.
Estate Planning Attorneys
One of the best ways to make sure that you avoid and reduce your tax liability related to your estate is to plan in advance. Seek help from experienced and qualified Montana estate planning attorneys like those at Tanko Law. We’ve been in the business of helping people with their wills, trusts and estate planning for many years, and we’re ready to help you as well.
Don’t get taken by surprise when it comes to your end of life planning needs. Call on Tanko Law for help, advice and to get your important plans in place today.