In the United States, inheritance property tax is assessed on nearly all inherited property. Any property received from a person who is deceased is referred to as inheritance property. It can come in the form of real property such as houses, land, or a business. Some of the most common inheritance property includes automobiles, boats, jewelry, household furnishings, and valuable clothing items such as fur coats or vintage wear.
Inheritance property can include all types of financial instruments such as cash, investment portfolios, and life insurance proceeds. Financial inheritance property is classified as personal property but is oftentimes taxed at a different rate than other types of personal property.
The tax rate assessed on inheritance property is based on the fair market value of the property. Typically, this value is established through an appraisal. Depending on the property being appraised, a professional appraiser may come to the location of the property or you might be able to take the property to the appraiser’s place of business.
A primary factor that affects the tax rate assessed is the beneficiary’s relationship to the decedent. For instance, a spouse is charged a lower tax rate than a distant cousin. Individuals who receive inheritance property are responsible for paying the associated tax.
State inheritance tax is generally not imposed on property that is passed to the surviving spouse. However, when a property is passed to children, family, or friends, state taxes are imposed. Each individual state governs inheritance taxes. Currently, 10 of the 50 states within the U.S. impose an inheritance tax. These include Indiana, Iowa, Kansas, Kentucky, Maryland, Nebraska, New Jersey, Oregon, Pennsylvania, and Tennessee.
Unless the decedent has constructed a revocable living trust, his estate will be placed in probate. This process takes between six months and two years to reach a settlement. Probating can be a time-consuming and costly process, as well as freezing assets until a judge can hear the case.
Inheritance tax returns must be filed by the Estate Executor with the Probate court in the county where the decedent resided. The return must be filed within nine months from the date of death and all taxes must be paid at the time of filing. If taxes cannot be paid in full, interest, late fees, and penalties may be assessed.
When receiving inheritance property certain steps must be adhered to and specific paperwork must be filed. Due to the complexities of inheritance property laws, it’s best to obtain legal advice from a lawyer who is well-versed in Inheritance Law.
Depending on the circumstances, you might be entitled to pro bono (free) legal assistance through the local chapter of the American Bar Association.