Inheritance Tax Versus Estate Tax: What’s the Difference?

6:24 pm Uncategorized

Inheritance tax and estate tax are in fact two very different things. While both usually diminish the overall value of the estate, one taxes the beneficiaries and the other taxes the entire estate.

Inheritance tax is how individual beneficiaries of an estate are taxed. For the property, assets, intellectual property or any other portion of an estate that an individual receives, he must pay an inheritance tax. On the other hand, the estate tax is how the federal government taxes the entire estate of the deceased person.

Generally, estate tax is managed by the executor of the estate. The executor of the deceased’s estate will be in charge of filing an estate tax return which will deduct the amount of tax owed to the government from the whole estate.

You should know whether or not your individual state imposes its own inheritance or estate tax — most states no longer impose estate taxes, but some still enforce inheritance tax. California for example no longer has an inheritance tax or estate tax, but that does not mean that a California estate is not subject to the federal estate tax — this means that your Newport Beach estate plan should include a defense strategy such as a California Living Trust to protect your assets to the highest degree possible. It is important to ask your estate planning attorney what inheritance and estate tax could mean for your estate.

Remember, as a beneficiary of an estate it is your responsibility to pay your inheritance tax if one applies. Ask your estate planning attorney how the inheritance law works in your state and how he can help you follow through with this responsibility. The upside? If there is an inheritance tax imposed, generally the percentage is lowered for beneficiaries that are immediate family, such as the decedent’s children and surviving spouse.

It is especially important for you to consider a living trust for asset protection in California if your estate is valued at more than two million dollars as this is the cutoff for estate tax exemption.

Your California legal and financial planning experts are at your service; Contact us today.

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