Any inheritance received in the United States is subject to an inheritance money tax or more simply stated an estate tax. The estate tax, which is as high as 55 percent, is charged on all proceeds received as an inheritance from a deceased person’s estate. The extent to which an estate is taxed is based on how the assets are distributed and to whom the proceeds are received.
Creating Charitable Trusts
Ways to mitigate the effects of an estate tax include setting up the estate in certain trusts that provide a contribution to a charitable organization and allow for the distribution of assets to the deceased person’s heirs. Trusts such as charitable remainder and charitable lead trusts are 2 such ways that a deceased person’s estate assets can be distributed to heirs such as children and siblings. The tax treatment of these trusts allows the proceeds to be given out tax-free and for the deceased’s estate to receive a tax deduction.
Federal Estate Tax Exclusion Amounts
The federal estate tax provides an exclusion of 1 million dollar on a taxable estate. This means that the recipient of the estate may exclude an amount up to the first $1 million in estate assets from the maximum 55 percent tax rate charged on the estate. This exclusion is also a way to mitigate the impact of an inheritance or estate tax.