Do I Have to Pay Taxes on What I Inherit?
It’s only natural to feel a mix of emotions when someone close to you passes away. You’re likely dealing with feelings of grief and loss while also trying to sort through your loved one’s estate. One concern that many people have is whether or not they’ll have to pay an inheritance tax or estate tax on assets they receive as an heir. These questions can best be answered by an estate planning attorney who’s well-versed in state law but can also advise on any federal laws that could affect you.
When you work with me, Russell Manning Attorney at Law, I’ll remain committed to open and honest communication and educating all my clients about the applicable laws so they can make informed decisions. I’m able to represent clients in Corpus Christi, South Texas, and the Coastal Bend area as well as Bee County, Kleberg County, Nueces County, and the rest of Texas. Reach out to me today to get started.
What Is Inheritance Tax?
An inheritance tax is a tax levied by the state on assets that are left to someone after they pass away. These taxes are payable by the individual who inherits the assets, not by the deceased’s estate. Many people can confuse this with an estate tax, and though the two are similar, they differ in one key way:
An estate tax must be paid by the estate, whereas an inheritance tax is paid by the inheritor.
Both taxes are most commonly implemented on the state level, though the federal government can also levy taxes related to estates. However, there is currently no federal inheritance tax. There is a federal estate tax, but this only applies to very large estates. In 2023, the estate has to be worth more than $12.92 million to be subject to these taxes.
Does Texas Impose Inheritance or Estate Tax?
So, is there an inheritance tax in Texas? There is no inheritance tax here, but there is an inheritance tax in six other U.S. states: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. If your family member was living in one of these states, you will likely have to learn about the requirements for paying the inheritance tax, even if you yourself reside in Texas.
How Inheritance Tax Is Calculated
Although each state sets its own standards for inheritance taxes, they are all structured in similar ways. Namely, only the amount that exceeds the exemption amount will be taxed and anything under it will remain untaxed. The amounts that do fall over the threshold are typically taxed on a sliding scale between 15% and 18%.
How Inheritance Tax Might Be Avoided
If you believe you’ll be taxed on your inheritance and are looking for options on how to avoid it (or at least minimize it), there will often be exemptions and exceptions you can take advantage of. Most of these are reserved for spouses and children of the deceased, but there are also ways for the estate holder to set up their assets to reduce the financial impact it has on their heirs. For example, they may be able to set the assets aside in a trust or take out an insurance policy for the amount they want to pass down, both of which can help avoid inheritance tax.
Will You Have to Pay? Reach Out To Me.
If you’ve recently come into an inheritance or know you’re likely to soon, you may be asking yourself, “Will I be taxed on the assets I inherit?” It’s important to sit down with a probate attorney who can evaluate your circumstances, then provide you with solid legal advice as to your best options. For help in and around the Corpus Christi, Texas area, contact me—Russell Manning Attorney at Law—for skilled and knowledgeable counsel.