Every estate plan and gifting strategy should include considerations of tax implications for your heirs and also for your estate, where applicable.
Leaving behind assets for your loved ones in your estate plan is a powerful and thoughtful move but it doesn’t come without potential consequences. When a loved one passes away, surviving family members have to deal with assets and debts in the loved one’s estate. If the estate is large enough, those family members may also have to worry about inheritance or estate taxes.
The estate tax is money taken by the federal government or in some states, the state government as well from the estate of a deceased person before any of those assets are given to friends, family or other beneficiaries. The inheritance tax, however, is associated with money paid by the person who has received an asset from a loved one.
Money can be subject to both estate and inheritance taxes although there is no federal inheritance tax. Much like estate taxes, there are several different states that levy inheritance taxes and the rules for inheritance taxes vary from one state to another.
In some cases, that inheritance tax may only apply on the state the heir lives in, though it can also be impacted by the state the person who died was living in at the time of their death as well. Because of these complex factors, it’s important to think about how this can influence your estate plan and what you may need to consider with the support of an experienced estate planning lawyer.