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Home » Do I Pay Taxes When Someone Leaves Me Money?

Do I Pay Taxes When Someone Leaves Me Money?

January 28, 2016 by Stephen Unsworth

Do I Pay Taxes When Someone Leaves Me Money?You will naturally have questions about taxation when you are engaged in your estate planning efforts. When you leave your loved ones inheritances, are they going to be taxed?

The answer is multifaceted, because there are various different types of taxes. An inheritance is not considered to be taxable income, so an inheritor would not be forced to report his or her inheritance.

When it comes to appreciated assets and the capital gains tax, there is a step-up in basis. If you leave assets that appreciated while they were in your possession to an heir, the inheritor would not be forced to pay capital gains taxes on the gains that took place during your life. However, the inheritor would be responsible for future gains.

Death Taxes

So far, we have passed along the good news, but now we have to head over to the other side of the equation. Large estates can be subject to death taxes.

There is an unlimited marital deduction that you can use to transfer any amount of property to your spouse free of estate taxes, as long as you are married to an American citizen. Transfers to others that exceed the amount of the federal estate tax exclusion are taxable.

For the rest of 2015, the federal estate tax exclusion stands at $5.43 million. Each year, there are adjustments to account for inflation, and the adjustment for 2016 has been announced. Next year, the federal estate tax exclusion will be $5.45 million.

In addition to the federal estate tax, there are a number of states in the union that impose state-level estate taxes. We practice law in the state of Vermont, and we do have an estate tax in our state.

The Vermont state estate tax exclusion is lower than the federal exclusion at $2.75 million, so you could be exposed to the state-level estate tax even if you are exempt on the federal level.  We should also point out the fact that a state-level estate tax can be applicable if you own property in a different state that has its own estate tax.

There are a handful of states in the union that impose inheritance taxes. An estate tax is levied on the entire taxable portion of an estate, but an inheritance tax is applied on each individual transfer to nonexempt inheritors. Fortunately, Vermont does not have an inheritance tax.

Take Action

If you would like to discuss taxation or any other estate planning matter with a licensed professional, our firm would be glad to answer your questions and help you put a plan in place if you decide to proceed.

We offer free consultations, and you can send us a message through the following page to get the ball rolling: Essex Junction VT Estate Planning Attorneys.

 

 

 

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Stephen Unsworth
Stephen Unsworth
Stephen A. Unsworth is admitted to practice in both Vermont and Maine, and has more than 30 years of experience in estate planning and business law. His mission is to provide quality estate planning services, including assistance with Living Trusts, Wills, Medicaid Planning, Probate, Trust Administration, Powers of Attorney, Special Needs Planning, and Family Limited Partnerships.
Stephen Unsworth
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Filed Under: Estate Planning

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