Inheritance tax is a tax imposed on individuals who receive property or assets from a deceased person’s estate. This tax is based on the value of the inheritance received and varies by jurisdiction.
Inheritance tax is distinct from estate tax, which is levied on the total value of a deceased individual’s estate before the distribution of assets to heirs. Inheritance tax typically applies at the individual level, meaning that the person who inherits the assets is responsible for paying the tax.
In the United States, inheritance tax is not a federal tax, and only a few states impose it. The rates and exemptions can vary significantly from one state to another. For example, in states that have inheritance tax, the tax rate may vary based on the relationship of the heir to the deceased; typically, close relatives such as spouses or children may pay a lower rate or be exempt from the tax altogether, while distant relatives or non-relatives may face higher rates.
As of October 2023, Texas does not impose an inheritance tax. However, individuals should be aware of potential tax obligations in other states if the deceased held property or assets there. Proper estate planning can help mitigate the impact of inheritance tax through strategies such as trusts or gifting during the donor’s lifetime.
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