Legal Forms of Will in Relation to Federal and State Taxes

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Upon a property owner’s death, various taxes will then have to be applied in the event of property transfers.  There are two general types of taxes and these include the estate tax, and the inheritance tax. 

Basically an estate tax, which is considered as a government tax, is applied during the transfer of properties upon a person’s death.  Assets will have to be assessed in order to determine the amount of estate tax, which is paid out in advance.  These assets will then be properly distributed to the different beneficiaries.  On the other hand, an inheritance tax is the amount of tax deducted on the actual property being transferred to the inheritor.  The amount of tax is determined by a recognized financial organization, or in this, case the state or federal government.  

Different states have different local rules and regulations regarding the amount of additional estate taxes or inheritance taxes.  Furthermore, the federal government or the state could impose a gift tax on a property transfer.  Basically the state of Nevada is the only place where they do not impose any estate, inheritance, or gift taxes.  Before thinking about transferring your properties, do know your local state tax situation beforehand. 

The Federal Income Tax Code has released an estimated 95% federal estate tax liability of the American public upon their death, which is a testament of estate taxes.  According to the IRS rules, a person’s assets will be exempted for the first $1 million from all estate taxes.  For a married couple, each one is entitled a separate $1million tax exemption.  Throughout the years, this rate has been increasing steadily: in 2004 to $1.5million, in 2006 to $2million, and in 2009 to $3.5million.  There are even reports that the tax code will be changed again in 2010. 

Furthermore, an individual’s estate that is left to a spouse upon death is also exempted from any federal estate tax.  Individuals who have assets beyond the minimum tax exemption can still look for legitimate and legal ways to decrease any tax liability.  It is recommended that you should consult a tax professional before preparing a will to determine the best way of asset management.

For those with a total estate value less than $1million, there is a minimal or even no estate taxes.  The fact is that most estate tax laws are directly influenced by the federal estate tax regulation.  With this, for those with estate properties under $1million, there is a level of exemption from the state.  Furthermore few states impose additional estate taxes. 

Additionally, less than half of US states impose inheritance tax to an individual who has inherited a property.  It is quite noticeable that there are high tax exemptions on inheritance taxes, which are scaled down so that any direct family will have lower tax rates than their more distant relatives or any unrelated individual who has received an inheritance. 

Most Americans have already taken into account tax considerations when preparing for a will.  These factors can usually affect only a fraction of the inheritance. 

 

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