How An Attorney Can Help Reduce Your State Inheritance Tax

10 February 2023
 Categories: Law, Blog

Most states do not have an inheritance tax. However, if you live in a state that does tax your inheritance, it's important to consult with an attorney so that you can make sure to meet your tax obligations and minimize the taxes that you owe.

When to Expect an Inheritance Tax

The inheritance tax will be levied on the right of the beneficiary to inherit property. The tax is usually the same figure regardless of the size of the inheritance. The tax can be higher or lower depending on the relationship of the beneficiary to the deceased, however. For example, children of the deceased are usually taxed less than other relatives.

Property That Might Be Taxed

The inheritance tax not only applies to liquid assets but also applies to all other forms of property including:

  • Houses
  • Cars
  • Boats
  • Jewelry
  • Antiques

All other forms of property may be subject to taxation. If you are not sure if your property will be taxed, make sure to speak with an inheritance taxation attorney.

Exempt Property

All property located within the state could be taxed, but property outside of the state is not taxed if the recipient is not a resident of the state in which the inheritance tax applies. If you purchase real estate outside of the state, this could be a way to give an inheritance to a beneficiary without paying an inheritance tax.

Life Insurance

While your property may be taxed, life insurance is not taxed through an inheritance tax. By spending more money on life insurance, your beneficiaries will receive a larger payout.

Joint Bank Accounts

One valid strategy is to set up a joint bank account with the beneficiary of your inheritance. For example, if you have four children and you own a joint bank account with all four of them, only one-fifth of the account will be taxed because the other four-fifths will belong to the other account holders.

However, make sure to speak with an inheritance taxation attorney to verify that this will work in your state.

Discounts and Penalties

Regardless of whether you will be able to reduce the inheritance tax or not, it's important that the taxes be paid as soon as possible. By paying taxes early, the beneficiaries may receive a discount. However, if the inheritance taxes are not paid early, the state might charge penalties and might take other legal action to collect the taxes owed.

Reach out to an inheritance taxation attorney to find out more.