Inheritance taxes may not seem fair to you or to your beneficiaries, but if you are familiar with some of the inheritance tax planning basics, you can avoid leaving your family with a large tax burden when you pass away. First, it is important to have a clear understanding of what inheritance taxes are and what they are not. Then you will be ready to develop a plan for how you want to handle them or how your beneficiaries should handle them when the time comes.

What is the difference between estate tax and inheritance tax?

There are many terms that people confuse when discussing this topic: estate tax, death tax, inheritance tax, and even death duty are used interchangeably although they are not synonymous. In the United States, a person’s estate and/or their beneficiaries may be subject to estate and inheritance taxes, depending on a number of factors. Here are some important points about both of these types of taxes that you should know:

- Estate tax is collected by the IRS, which means that it is a federal tax. No matter which state you live in, your estate is subject to the IRS estate tax laws.

- Estate tax can also be collected by the state government. Some states do collect estate taxes while others do not.

- Estate tax is paid by the representatives of the estate, not by the individual beneficiaries.

- Inheritance tax is not collected by the IRS. The federal government has no tax laws that address inheritance taxes, only estate taxes.

- Each state is allowed to decide whether or not it will collect inheritance taxes.

- Inheritances taxes must be paid by the person who inherits something from the estate, also referred to as the beneficiary. This means that the estate is not responsible for these taxes, but anyone who is given something from the estate needs to know whether or not they will be responsible for paying taxes on that property or asset.

How to plan for inheritance taxes

When you are ready to develop a comprehensive estate plan, you should meet with an experienced tax planner with a legal background in your area. He or she will be able to tell you which taxes will apply to you and to the beneficiaries of your estate. If you choose, you can plan to help these individuals with the appropriate taxes as part of your last will and testament.

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