Getting an inheritance can cause a mixed bag of emotions. In the mind of some people, when the property is transferred to an individual in the form of an inheritance, they may feel as if they are profiting from the loss of a loved one. However, it can be a double blow if you also are expected to pay taxes on the benefits received. It leads many to wonder what are the federal inheritance tax rates that will apply for them.
What Does the Law Say?
There is a difference between an inheritance tax and an estate tax, and that difference can be the determining factor as to whether or not the recipient is required to pay taxes. An estate tax is imposed on a representative of a deceased person, which means that if there is no stipulation (or will) outlined as to who gets what property, the money goes into the estate and a representative is chosen (usually the nearest relative) to receive the property and manage it. For these people, a tax must be paid on the money or property received. However, if the deceased has left explicit instructions as to where the monies are to go, then there are no federal inheritance tax rates to be imposed.
How These Taxes Are Determined
While the explanation above is very basic in nature, there are many other factors that could be considered in the process. It might be wise to retain the services of an estate attorney to make sure that your interests are protected. First of all, the fair market value of the deceased' entire estate is determined. This should include everything from cash to stocks, bonds, real estate, and insurance policies. The total amount will be what is determined as the gross estate.
Then there is a need to factor in any adjustments to the gross estate like paying off the balance on a home loan, or any additional fees that may be connected with properties owned, legal fees, and money designated for the surviving spouse or children.
Once the adjustments have been made, you will have the net value of the estate property, or the amount of money to be taxed. This number must be subtracted from an inheritance tax credit table provided by the government. If the net estate is higher than the tax exclusion then taxes will be owed. On the other hand, if the net estate is lower then you will not need to pay any taxes on the inheritance. However, this only applies if you are receiving an estate rather than an inheritance.
Understanding the federal inheritance tax rates can be very complicated and confusing. If you're not well versed in the law, then it might be best to enlist the aid of a legal professional that specializes in the handling of these types of cases. It is also important to know that federal inheritance tax laws may not be the same as the state inheritance tax laws. It would be in your best interest to do as much research as possible to make sure that you fully understand what are involved in handling the financial affairs of a deceased relative.