Even though both estate taxes and inheritance taxes are sometimes called death taxes, they are both very different. Anybody who needs to do estate planning should probably consider both issues in order to make sure that heirs get the maximum value from their inheritance. To help, we have provided a short explanation of estate taxes vs. inheritance taxes.
The federal government and several states impose an estate tax. This tax is collected on the fair market value of the assets inside the estate before anything gets distributed to heirs. Right now, the federal exemption is over five million dollars, so it’s not something that most folks need to worry about. States might have lower exemptions.
Inheritance taxes are collected against the income of the person who inherits, so they are different than estate taxes. The federal government does not collect inheritance taxes, but some states do. Even a relatively modest inheritance could drive some people’s income into a higher tax bracket if they live in a state that collects state income taxes.
Typically, proceeds from life insurance and similar products don’t generate tax bills. To learn more, contact us here at Trusted Senior Specialists: 1-855-474-6234 or schedule an appointment here.