If you have recently come into a lot of wealth through the will of a deceased relative, you could be confused with the various tax laws that affect your inheritance. Tax law that is concerned with inheritance is complicated. The complexity is due to the fact that these taxes are undergoing the “phase out” period, that is the government is trying to do away with the taxes over a period of time. The basics that are required by an individual to determine whether or not he owes the state inheritance tax is given below.1. There is no need to pay inheritance tax if you happen to be the spouse of the deceased . A widow or widower is not expected to pay inheritance tax for receiving money from his/her deceased spouse’s estate.
3. Inheritance tax is not collected on the money received from life insurance. The money that is received as insurance amount does not come under taxable income and is not considered for the payment of inheritance tax.4. When the value of the estate is less than 2 million dollars there is no need to pay tax for the inheritance received from the estate. This tax law is presently subject to Act of Economic Growth and Tax Reconciliation of 2001. This law holds good till the year of 2008 ( no inheritance tax upto 2 million dollars), in the year 2009 the limit will increase to 3 million dollars. The Act is all set to be repealed altogether in the year of 2010. This is subject to the Congress and unless it acts you could be levied tax on inheritance as low as 1 million dollars.5. Inheritance tax cannot be avoided by acquiring money from a person before he dies. If a relative of yours gives a part of his fortune before he dies, then the amount received will still be considered as part of inheritance and may be taxed. This comes under the category of gift tax. A person can give away amount upto $12,000 to a person without incurring any gift tax. A couple can donate double the amount. However a person can only receive a million dollars before it starts to fall under the category of inheritance law.
Received inheritance? Then it is better to consult with a professional adviser to assess the exact amount that you need to pay. Generally as specified above, if the value of estate is less than 2 million dollars then there is no inheritance tax. In case this is a complex issue and most certainly the domain of experts. It is always advisable to have an expert to look at your taxes.