Inheritances can trigger taxes.
Your loved one passed away.
You are mourning the loss.
You are coordinating the funeral, visitation, and other family gatherings.
The last thing you want to think about is taxes.
According to a recent Investopedia article titled “Are Estate Distributions Taxable?,” it is important to understand tax implications if you are an heir.
Your loved one left you an inheritance.
Does this mean you will owe taxes on your inheritance?
The federal government does not level an income tax on inherited property or cash.
Some states do have an inheritance tax.
If you or your loved one lived in Kentucky, Nebraska, Pennsylvania, Iowa, Maryland, and New Jersey, there may be an inheritance tax.
If you are a child or spouse of the decedent, you most likely will be exempt.
Taxes are only levied on more distant relatives or friends.
How much will be owed?
The tax rates range from 5 percent to 15 percent.
Are you free from inheritance taxes because you do not live in one of these states?
If you inherit a traditional IRA, you will owe income taxes on the withdrawals made from the account.
Are you the executor of the estate?
If yes, you will also need to be concerned about the estate tax implications because you are responsible for the filing the tax return for the estate.
The current estate tax exemption level is $11.4 million for a single and $22.8 million for a married couple.
Even if the estate value is below the taxable threshhold, you may need to pay a state estate tax.
When it comes to taxes, strategic and organized planning is essential.
Working with an experienced estate planning attorney will help minimize any estate and inheritance consequences.
Reference: Investopedia (August 4, 2019) “Are Estate Distributions Taxable?”