It has been said that the only two sure things in life are death and taxes, but death itself can lead to taxation.  Imagine, you’ve just buried your loved one, found out they left you one of their most prized possessions and then very soon after you receive it you are hit with a tax bill.  Welcome to the wonderful world of the inheritance tax.

According to answers.com the inheritance tax is “a tax imposed on the privilege of receiving property by inheritance or legal succession and assessed on the value of the property received…”  What I find funny about the definition is that we are being taxed for a privilege.  I wonder if all of the taxes we pay are because of perceived privileges that we receive.  If that were true that means I am being taxed for the privilege of working in New York and the USA, for the privilege of owning property, for the privilege of buying clothes and other necessities.  With all of the taxes we have to pay it is possible to feel like you are being taxed to death, no pun intended.  Well, let me get off my soapbox because that’s not the focus of this post, let’s learn more about this privilege of paying an inheritance tax.

First of all an inheritance tax is different from an estate tax.  An estate tax is paid on the whole value of the estate while an inheritance tax is only paid on the actual value of the property received.  A better way to look at is if my grandma dies and I inherit her entire estate worth $1.5 million dollars then I would pay an estate tax on the whole value of her estate.  Now if grandma left me her vintage antique grandfather clock worth $20,000 than I would pay an inheritance tax on that particular item. 

What’s good about an inheritance tax, if you can actually call any tax good, is that the tax rate changes based on the relationship you have to the deceased person.  Usually if you are a close relative you will pay less than if you are a friend of the family.  On the bad side inheritance taxes can be charged by a state in addition to any state or federal estate taxes that you may have to pay.  Most likely your state will charge an estate tax however every state does not charge an inheritance tax.  At last count there were eleven states that still have this tax.  You can Click here to learn more about the taxes that are imposed by your state.

Lowering inheritance taxes is a little more challenging than lowering estate taxes.  Because estate taxes are based on the value of the whole estate, obviously if you can lower the value of the estate before you die then you would leave a lower tax burden for those you are leaving the estate to.   With inheritance taxes it is a little more challenging because you are only paying taxes on the value of individual items.   

There is a debate that still goes on regarding the validity of these types of taxes.  You can click here to read more about this.  Also I found a great in depth post on inheritance taxes on how stuff works.  I guess the real issue is what side of the tax burden you are on.  Most people in death will try to alleviate as much tax burden on their heirs, but once you are gone, no matter how hard you tried,  you have no further burden.  It is those who receive from your inheritance that are left with the tax burden or should I say privilege.  As comedian Yakov Smirnoff used to say “What A Country”!