If you recently lost a loved one, you are going through a difficult time. Uncertainty about your inheritance may increase the amount of stress you feel as you grieve.
Inheritance and estate taxes are two separate charges levied by the government. Whether you pay one or both taxes depends upon the state the deceased resided in and how large the estate is.
What is the difference between these two taxes?
The estate itself pays an estate tax upon the death of the owner. Contrarily, the beneficiaries of the estate pay inheritance tax when the assets pass to them. In most instances, spouses do not need to pay an inheritance tax for assets their spouse bequeathed them. New Jersey has an inheritance tax but not an estate tax. However, the federal government imposes an estate tax upon estates with assets exceeding a certain threshold.
Do I need to pay both taxes?
Generally speaking, you will not need to pay both inheritance and estate tax. In rare circumstances with estates in the millions of dollars, the government could tax your estate, and then your beneficiaries could also owe an inheritance tax.
Is there a way to avoid these taxes?
One way to avoid paying taxes on your assets is to give them away while you are alive. Other viable options include creating one of several types of trusts. An experienced estate planning attorney can assist you in navigating this complex system.
Protect yourself and your family by thinking ahead and planning for their financial future in the aftermath of your death.