Inheritance Tax is paid on the property of the deceased, by the person who is inheriting it. This term maybe divided into two categories, as follows:
On Total Property
In the event of a person dying, his total property left behind, is transferred to an inheritor. In some cases the inheritor may exceed more than one. In such cases the property is split between the individual inheritors, as stated in the dead person's will. In this method of taxation, the rate of tax is comprehensively levied on the whole property.
After Division
In this second method the tax rate is levied on the divided property.
Factors affecting inheritance taxes
Inheritance taxes are levied by the state, so the rules of it differ from state to state. Although, the tax rates vary form country to country, there are other factors influencing the implementation of inheritance taxes. These are as follows:
Amount of the inheritance
The amount of one's inheritance, determines the tax rate to be applied on it. States levy inheritance taxes according to the value, which an individual is going to inherit. Most states have some determined values up to which, no state tax is levied. If one's total value exceeds these values, then he or she becomes liable to pay these taxes.
Relationship of the beneficiary to the donor
The tax rate of your inheritance also depends on your relationship with the beneficiary. For instance if one is the spouse, child or first blood relative, then he is levied with a lesser amount, as compared to friends, or other than first blood relatives.
Exemptions Allowed Under Inheritance Taxes
It is not necessary that everything you inherit has its taxes levied. Here are some of the cases where tax is not levied.
Spouse inheriting
Before, spouses also had to pay taxes on the property they used, to inherit from their deceased husbands. But now, they have realized that these spouses must not be imposed by taxes, and in many states they are not.
Standard exemption
Taxes are also not levied if the deceased person has some debts and loans. First these values are deducted, and then the total value or the gross value of the property is attained. The tax is then levied on this value.
Joint property
Many states have discontinued the taxes levied on joint properties such as a husband and a wife owning a property, in which both have their shares. So the taxes are not levied on it if one dies.
Miscellaneous proceeds
Money inherited from proceeds like life insurance, retirement's benefits and others are also not imposed with taxes.
The above are some of the conditions, in which inheritance taxes are not applied. Besides these, inheritance may be considered as an unfavorable thing, if the cost of the property is far less than the huge amount of taxes imposed on it. The inheritor in this case won't be benefiting from such a predicament.
