Sunday, March 11, 2012
More on "estate tax" and "inheritance tax" terminology
I find, on the Internet, a lot of confusion between the terms “estate tax” and “inheritance tax”. An “estate tax” is applied to the estate before distribution to heirs. In the US, for deaths occurring in 2010 or 2011, the “exempted amount” (in most cases) for the federal tax is $5 million.
Dianne Reis has a website that explains the two terms, here. In the United States, the federal government has an estate tax (as above) but no subsequent “inheritance tax” on beneficiaries after distribution (whether there is a trust wouldn’t seem to matter). If it did, that would be another example of “double taxation” (see Khan Academy’s video on the previous post). But many states do have their own “inheritance tax” applied to beneficiaries upon distribution, especially those who are not legal spouses or (sometimes) children. In some states the rates are steep.