What is Inheritance Tax?
Nowadays, there are a variety of taxes applicable to be paid by citizens. These taxes are proportional to property or net income someone has. When someone is deceased, another person who is related to him or her receives a share from the property. This inheritance also comes under the umbrella of taxation known as inheritance tax or estate tax.
Inheritance tax is very uncommon. Only a total of six states have inheritance tax laws and others apply estate tax, though the total possessions of the deceased should exceed a certain threshold before it is eligible for the estate tax.
How Does it Differ from Estate Tax?
An Estate Tax slightly differs from inheritance tax. Estate tax is to be paid by the “estate.” The key difference is being the one who has to pay the tax. Inheritance tax is paid by the one who receives the property or money after it is transferred. On the other hand, the estate tax is paid out from the total money and/or property of the deceased before distribution to the beneficiaries.
How Does Inheritance Tax Work?
First of all, a state executor divides the total property of the deceased among the beneficiaries. This is done according to some written will and/or government laws, if applicable. Once the division is complete, each beneficiary is placed in a tax bracket. For example, there might be a certain threshold; those who are below it might not be taxed. As the amount of money goes higher, the percentage of tax might increase too. After all of this has happened, the required tax is paid by the concerned people and it is reported through an inheritance tax form.
There is no federally implemented inheritance tax; however, certain states impose them which are listed as follows:
- New Jersey
Even the regulations in these states may change with time, it is best to consult with the state’s tax representative. Moreover, the value of tax may also vary, ranging from 1% to as high as 20%.
Peacefully Dividing the Assets Among the Beneficiaries
Money and property have a huge importance in all of our lives. This is why everyone wants to have a big chunk from the deceased’s assets. As there are family members or close relative involved in this division, things can get very complex. It is very important to remain cordial during this process and give everyone their due right. The family member should be considerate of others and also focus on the well being of others. Helping those family members who are going through a tough time can be a great gesture. Listed below are a few measures that can be taken beforehand to make sure things go smoothly later on.
1- Writing a will
The person who is about to be deceased may write a clear will regarding the inheritance. This can clear up a lot of doubts in the future. However, this measure may not be very suitable in case of a sudden death. Generally, planning for the future is a great thing. It can help the person, as well as others. One step could be taking certain steps before retirement to make sure any mishaps are avoided.
2- A mediator
A trustworthy person may be agreed upon as a mediator in order to avoid conflict. Such person must be someone who does not have any personal stakes involved and has a good understanding of family matters, as well as the state’s inheritance laws. It also requires maturity and responsible behavior.
3- State executor’s role
In case of a large amount of property left behind by the deceased person, a state executor or lawyer can play a vital role. He can divide the property among the beneficiaries according to the will and state laws. The executor can complete the formal technicalities as well.
Focusing on Little Things
Dividing assets can be a real headache if not done properly. A lawyer can help only to a limited extent. Most of the time, there are little things that can cause a havoc. Focusing on little things while dividing assets is very important. There might be something that may not have a lot of financial value but could be very important to someone. In dealing with such sensitive matters, the family members need to work together and try to keep the process neat and smooth.